Prescription Drug Marketing Act of 1987; Prescription Drug Amendments of 1992;
Policies, Requirements, and Administrative Procedures
Part III
59 FR 11842

DATE: Monday, March 14, 1994

ACTION: Proposed rule.

SUMMARY: The Food and Drug Administration (FDA) is issuing a proposed rule to set forth agency policies and requirements and to provide administrative procedures, information, and guidance for those sections of the Prescription Drug Marketing Act of 1987 (PDMA), as modified by the Prescription Drug Amendments of 1992 (PDA), that were not implemented by the final rule that set forth Federal guidelines for State licensing of wholesale drug distributors (55 FR 38012, September 14, 1990). FDA is also proposing to amend the definitions section of the State licensing guidelines to make the definition of "wholesale distribution" consistent with that in this proposed regulation.

DATES: Written comments by May 30, 1994.

ADDRESSES: Written comments to the Dockets Management Branch (HFA-305), Food and Drug Administration, rm. 1-23, 12420 Parklawn Dr., Rockville, MD 20857.

FOR FURTHER INFORMATION CONTACT: Richard L. Arkin, Center for Drug Evaluation and Research (HFD-362), Food and Drug Administration, 7500 Standish Pl., Rockville, MD 20855, 301-594-1046.

SUPPLEMENTARY INFORMATION:
 
Table of Contents
 
I. Background
 
II. Description of the Proposed Rule
A. Scope
B. Reimportation
C. Sales Restrictions
D. Samples
E. Wholesale Distribution
F. Request and Receipt Forms, Reports, and Records
G. Penalties and Rewards
H. Technical Amendment to State Licensing Guideline
 
III. Economic Analysis
 
IV. Executive Order 12612: Federalism
 
V. Paperwork Reduction Act of 1980
 
VI. Environmental Impact
 
VII. Request for Comments
 
I. Background
On April 22, 1988, the President signed PDMA into law (Pub. L. 100-293). According to the congressional findings that were made part of the text of PDMA as section 2, the legislation was intended to ensure that drug products purchased by consumers would be safe and effective and to avoid an unacceptable risk that counterfeit, adulterated, misbranded, subpotent, or expired drugs were being sold to American consumers. (See sec. 2(8), PDMA.)
Congress found, among other things, that legislation was necessary because there were insufficient safeguards in the drug distribution system to prevent the introduction and retail sale of substandard, ineffective, or counterfeit drugs, and that a wholesale drug diversion submarket had developed that prevented effective control over, or even routine knowledge of, the true sources of drugs. (See secs. 2(2) and 2(3), PDMA.)
Congress found that large amounts of drugs had been reimported into the United States as American goods returned, causing a health and safety risk to American consumers because the drugs may have become subpotent or adulterated during foreign handling and shipping. Congress also found that a ready market for prescription drug reimports had been the catalyst for a continuing series of frauds against American manufacturers and had provided the cover for the importation of foreign counterfeit drugs. (See sec. 2(4), PDMA.)
The congressional findings stated that the then-existing system of providing drug samples to physicians through manufacturers' representatives had been abused for decades and had resulted in the sale to consumers of misbranded, expired, and adulterated pharmaceuticals. (See sec. 2(6), PDMA.)
According to the congressional findings, the bulk resale of below-wholesale-priced prescription drugs by health care entities for ultimate sale at retail helped to fuel the diversion market and was an unfair form of competition to wholesalers and retailers who had to pay otherwise prevailing market prices. (See sec. 2(7), PDMA.)
PDMA amends 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: (1) Ban the reimportation of prescription human drugs produced in the United States, except when reimported by the manufacturer or under FDA authorization for emergency medical care; (2) ban the sale, purchase, or trade, or the offer to sell, purchase, or trade, of any drug sample; (3) ban the sale, purchase, or trade, or the offer to sell, purchase, or trade, or counterfeit any drug coupon; (4) establish limits on the distribution of drug samples to practitioners licensed to prescribe such drugs or to pharmacies of hospitals or other health care entities, including a requirement that such distributions occur only at the request of a licensed practitioner; (5) require licensed practitioners to request samples in writing; (6) mandate storage, handling, and recordkeeping requirements for drug samples; (7) prohibit, with certain exceptions, the sale, purchase, or trade, or the offer to sell, purchase, or trade, of prescription human drugs that were purchased by hospitals or other health care entities, or which were donated or supplied at a reduced price to a charitable organization; (8) require State licensing of wholesale distributors of prescription drugs under Federal guidelines that include minimum standards for storage, handling, and recordkeeping; (9) require unauthorized wholesale distributors to provide to each wholesale distributor a statement identifying each sale of the drug before the sale to such wholesale distributor; and (10) set forth civil and criminal penalties for violations of these provisions.
Most PDMA provisions became effective July 22, 1988. However, the drug sample distribution requirements (section 503(d) of the act (21 U.S.C. 353(d))) became effective on October 20, 1988, and the requirement for State licensure of wholesale distributors (section 503(e)(2) of the act) became effective on September 15, 1992 (2 years after the adoption of final rules by the agency setting standards for State licensing). In the Federal Register of September 13, 1988 (53 FR 35325), FDA published proposed State licensing guidelines to implement that part of PDMA. FDA received approximately 50 comments on the proposal. These comments were made part of a public docket (Docket No. 88N-0258), which is available for inspection at FDA's Dockets Management Branch (address above). After considering all the comments received on the proposed rule, FDA published revised State licensing guidelines as a final rule (21 CFR part 205) in the Federal Register of September 14, 1990 (55 FR 38012). That rule includes minimum requirements for storage and handling of prescription drugs and for establishment and maintenance of records of drug distribution.  [*11843]
The PDMA State licensing requirements were modified by the enactment of PDA (Pub. L. 102-353, 106 Stat. 941) on August 26, 1992. Among other things, PDA amended section 503(e) of the act to establish a temporary Federal wholesale distributor registration procedure for wholesale drug distributors in those States that do not have a licensing program that meets the Federal guidelines. On September 3, 1992, FDA issued a letter to industry and other interested persons providing information and guidance on the procedure to be followed by wholesale distributors required to register under the procedure established by PDA.
PDA also recast other parts of PDMA. Among other things, PDA: (1) Amended section 303(b)(1) of the act to establish a scienter requirement ("knowingly") for conviction of violations of certain prohibited acts under section 301(t) of the act relating to reimportation (section 801(d)(1) of the act), samples (section 503(c)(1) of the act), coupons (503(c)(2) of the act), and unlicensed wholesale distributors (section 503(e)(2)(A) of the act); (2) amended section 503(d) of the act to prohibit the distribution of drug samples by anyone other than the manufacturer or authorized distributors of record, except that Congress excluded from the term "distribute" the provision of a drug sample to a patient by a licensed practitioner, health care professional acting at the direction and under the supervision of such a practitioner, and a hospital or health care entity pharmacy acting at the direction of such a practitioner; (3) amended section 503(d)(2) and (d)(3) of the act to disallow any distribution of drug samples by unauthorized distributors; (4) amended section 503(e)(1) of the act to require that unauthorized distributors provide a statement of origin identifying all prior sales, purchases, or trades of such drugs and the names and addresses of the parties to the transactions to all recipients; and (5) made certain conforming and technical changes to the statute.
On August 1 and November 3, 1988, and January 26, 1990, FDA issued letters to the regulated industry and other interested persons providing information and guidance on those aspects of PDMA that were not implemented by the State licensing rule. The letters requested suggestions from the public regarding the drafting of regulations. Suggestions from the public have been made part of a public docket (Docket No. 88N-258L), which is also available for inspection at FDA's Dockets Management Branch (address above). The agency has received requests for the issuance of further guidance letters to provide specific information in certain areas or to answer particular questions. However, FDA believes that it is now appropriate to establish definitive requirements through notice and comment rulemaking.
In drafting this proposed rule, the agency considered the comments submitted to Docket Nos. 88N-0258 and 88N-258L, including suggestions received in response to FDA's three guidance letters, pertinent comments received in response to the proposed rule on State licensing of wholesale distributors, and other written submissions.
 
II. Description of the Proposed Rule
FDA is proposing to add a new part 203 to set forth agency policies and requirements and to provide administrative procedures, information, and guidance for those sections of PDMA that were not implemented by part 205. FDA is also proposing to amend §  205.3 to make the definition of "wholesale distribution" consistent with that in proposed part 203.
A summary of the provisions of proposed part 203 follows:
 
A. Scope
 
1. General
It was intended that PDMA would protect the public against the threat of subpotent, adulterated, counterfeit, and misbranded drugs posed by the existence of drug diversion schemes and a drug diversion submarket, and the absence of appropriate controls over and creation and maintenance of appropriate records regarding the distribution of prescription drugs.
Accordingly, the scope of the proposed rule, as set forth in proposed §  203.1, includes establishment of procedures and requirements pertaining to the reimportation and wholesale distribution of prescription drugs; the sale, purchase, or trade (or the offer to sell, purchase, or trade) of prescription drugs by hospitals, health care entities, and charitable institutions; and the distribution of prescription drug samples.
 
2. Bulk Drugs
Some questions have been raised about the applicability of PDMA to bulk drugs. The statutory language of PDMA encompasses all drugs subject to section 503(b) of the act within its scope.
The legislative history ("Report of the Committee on Energy and Commerce," H. Rept. 100-76, April 30, 1987, and "Report of the Committee on Finance," S. Rept. 100-202, March 18, 1988) or the congressional hearing record do not suggest that bulk drug substances be treated any differently from other prescription drugs. Bulk drug substances are susceptible to the same problems of lack of accountability and diversion that this legislation was intended to remedy. It is clear that applying the provisions of the statute to bulk drug substances would help protect against the abuses that Congress intended to address and contribute to the protection of the public health. Accordingly, bulk drug substances are, as drugs within the meaning of section 503(b) of the act, expressly brought within the scope of PDMA and these implementing regulations.
 
3. Biological Products
Questions have also been raised about the applicability of PDMA to biological products, even though the statutory language of PDMA encompasses all drugs subject to section 503(b) of the act.
There is nothing in the legislative history or the congressional hearing record to suggest that biological products that are prescription drugs under section 503(b) of the act should be treated differently from other prescription drugs. Biological products, except for blood and blood components intended for transfusion, are susceptible to the same problems of lack of accountability and diversion that this legislation was intended to remedy. It is clear that applying the provisions of the statute to biological products, except for blood and blood components intended for transfusion, or biological products which are also medical devices, would help protect against the abuses that Congress intended to address and contribute to the protection of the public health. Accordingly, biological products that are prescription drugs under section 503(b) of the act, except for blood and blood components intended for transfusion, fall under the scope of PDMA and are expressly included in these implementing regulations.
 
4. Blood and Blood Components Intended for Transfusion
Since passage of PDMA, a number of persons have presented to FDA issues posed by the application of PDMA to the distribution and sale of blood and blood components intended for transfusion by blood establishments and hospitals. Two comments to the agency requested clarification of PDMA's scope and urged FDA to exempt blood establishments from all of PDMA's provisions. The comments contended  [*11844]  that licensing blood distributors as wholesalers would seriously disrupt the Nation's blood services. A third comment suggested that the agency could, by notice and comment rulemaking, exempt blood and blood components from PDMA by declaring that they are not prescription drugs for PDMA purposes.
PDMA, by its literal terms, applies to all drugs that are subject to section 503(b) of the act; that is, to all human prescription drugs, including biological products. There is no doubt that blood and blood components intended for transfusion are prescription drugs. (See 21 CFR 606.121(c)(8)(i) and 610.61(s). See also 47 FR 22518, May 25, 1982; 46 FR 40212, August 7, 1981.) However, if PDMA were considered applicable to the distribution of blood and blood components, the result would be to impede the existing blood distribution system, thereby interfering with our Nation's blood supply. Because application of PDMA to blood and blood components would produce this untenable result, FDA believes that Congress could not have intended to subject blood and blood components to PDMA's provisions.
Moreover, the legislative history lacks any discussion of PDMA's application to blood and blood components and also clearly shows that Congress intended that PDMA remedy problems associated with the distribution of those drugs that are popularly referred to as "medicines" or "pharmaceuticals." (See Pub. L. 100-293, sec. 2 (1988) ("Report of the Committee on Energy and Commerce," H. Rept. 100-76, April 30, 1987, and "Report of the Committee on Finance," S. Rept. 100-202, March 18, 1988).) Blood and blood components are unique drug products that are distributed in an entirely different way from other prescription drugs. FDA believes that the fact that blood and blood components are not part of the system of distribution and marketing that Congress intended to regulate under the terms of PDMA further signals that Congress could not have intended to include blood and blood components within the scope of the licensing requirement.
Accordingly, FDA has taken a number of actions to clarify the scope of PDMA to prescription drugs other than blood and blood components intended for transfusion. In the final State licensing guideline rule (55 FR 38012 at 38024), FDA specifically excluded from the definition of "wholesale distribution" the sale, purchase, or trade of blood and blood components intended for transfusion (see §  205.3(f)(8)). At the same time, FDA published another proposed rule, "Applicability to Blood and Blood Components Intended for Transfusion; Guidelines for State Licensing of Wholesale Prescription Drug Distributors" (55 FR 38027, September 14, 1990), asking for comments on the exclusion of blood and blood components intended for transfusion from the PDMA State licensing guidelines.
After considering the comments received and reviewing PDMA's purpose and its legislative history, FDA has tentatively concluded that PDMA is not intended to apply to blood and blood components intended for transfusion. Accordingly, at §  203.1 the proposed rule would exclude blood and blood components intended for transfusion from the requirements of and the restrictions in PDMA and also adds specific language at §  203.22(g) excluding blood and blood components intended for transfusion from the PDMA sales restrictions.
 
5. Oxygen
Questions have also been raised about the applicability of PDMA to the drug oxygen, U.S.P. (U.S. Pharmacopeia). FDA advises that oxygen, U.S.P., is a prescription drug subject to section 503(b) of the act, and, therefore, within the scope of PDMA and these proposed regulations.
 
B. Reimportation
Section 801(d) of the act (21 U.S.C. 381(d)) provides that a prescription drug that is manufactured in a State and exported may not be reimported into the United States unless it is imported by the manufacturer, except when authorized by the Secretary of Health and Human Services for emergency medical care. The delegation of authority provisions at 21 CFR 5.10 redelegate the functions of the Secretary to the Commissioner of Food and Drugs.
Section 801(d) of the act responds to a finding that large amounts of drugs were being reimported into the United States as "American Goods Returned," and that these imports posed a health and safety risk to American consumers because they could become subpotent or adulterated during foreign handling and shipping. (See sec. 2(4), PDMA.)
The congressional findings also acknowledged that what was termed "the ready market for prescription drug reimports" was "the catalyst for a continuing series of frauds against American manufacturers and has provided the cover for the importation of foreign counterfeit drugs." (See sec. 2(5), PDMA.)
 
1. Restrictions on Reimportation
Proposed §  203.10 sets forth the restriction that no prescription drug manufactured in a State and exported from the United States may be reimported by anyone other than its manufacturer, except that FDA may grant permission to a person other than the manufacturer to reimport a prescription drug if it deems such reimportation is required for emergency medical care.
 
2. Defining "Manufacturer"
FDA defined the term "manufacturer" in the PDMA State licensing regulation to mean anyone engaged in manufacturing, preparing, propagating, compounding, processing, packaging, repackaging, or labeling of a prescription drug (§  205.3(d)). This definition is somewhat more inclusive than the definition used earlier by the agency in the labeling provisions at §  201.1 (21 CFR 201.1). The definition in §  201.1(b) states that the manufacturer is the person who performs all of the following operations that are required to produce the product: (1) Mixing, (2) granulating, (3) milling, (4) molding, (5) lyophilizing, (6) tableting, (7) encapsulating, (8) coating, (9) sterilizing, and (10) filling sterile, aerosol, or gaseous drugs into dispensing containers; or at least some of the operations if the labeling indicates the presence of other manufacturers. Under §  201.1, a packer or distributor is not the same as a manufacturer.
FDA concluded that the more inclusive definition of "manufacturer" was consistent with the intent of the statute in imposing the requirement for State licensing of wholesale drug distributors; however, the agency has preliminarily concluded that a less inclusive definition of that term would be more consistent with the intent of the remaining sections of PDMA. For example, the statutory provision against reimportation by persons other than the manufacturer (except when permission is granted by FDA) is intended to establish accountability in reimportations so that adulterated and/or misbranded goods do not reenter commercial channels in the United States. The reimportation provision is based on the assumption that a manufacturer, in the less inclusive sense, is the person most knowledgeable about the product's characteristics; is the most capable of determining that the product meets the stability, quality, and purity standards it is represented to possess; and is the only person capable  [*11845]  of authenticating the basic integrity of the product.
The remaining sections of PDMA are consistent with the less inclusive definition of "manufacturer" in §  201.1, rather than the more inclusive definition in §  205.3(d). Accordingly, proposed §  203.3(p) proposes to adopt the definition of "manufacturer" in §  201.1 for this rule.
 
3. Applications for Reimportation to Provide Emergency Medical CareProposed §  203.11 provides an administrative procedure by which applications may be made by a person other than the manufacturer for the reimportation of prescription drugs for emergency medical care. The proposal would codify the current procedure whereby applications for reimportation are submitted to the Director of the FDA District Office in the district where reimportation is sought. The District Office would review and approve or disapprove each application.
 
4. An Appeal From an Adverse Decision by the District Office
Proposed §  203.12 would also codify the current procedure that permits an appeal from an adverse decision by the district office to be made to the Office of Compliance (HFD-300), Center for Drug Evaluation and Research, for prescription human drugs other than biological products. An appeal from an adverse decision involving human prescription biological products is to be made to the Office of Compliance (HFM-600), Center for Biologics Evaluation and Research.
 
C. Sales Restrictions
Section 503(c)(3) of the act prohibits, with certain exceptions, the sale, purchase, or trade (or any offer to sell, purchase, or trade) of any prescription drug that was purchased by a public or private hospital or other health care entity, or donated or supplied at a reduced price to a charitable organization described in section 501(c)(3) of the Internal Revenue Code of 1954.
 
1. Defining "Charitable Organization"
Section 501(c)(3) of the Internal Revenue Code generally exempts from income taxes not-for-profit organizations that operate for religious, charitable, scientific, literary, educational, and public safety purposes. However, such exemptions are not automatic. Under 26 CFR 1.501, a charitable organization must apply for and be granted tax-exempt status. Tax-exempt status may be revoked and the organization may lose its exemption if it fails to meet the requirements of the statute and regulations.

It is FDA's view that an organization can be accurately described as one fitting the requirements of section 501(c)(3) of the Internal Revenue Code only if it has been granted tax-exempt status by the Department of the Treasury. Accordingly, FDA proposes to define the term "charitable organization" in proposed §  203.3(f) as a nonprofit hospital, health care entity, organization, institution, foundation, association, or corporation that has been granted an exemption under section 501(c)(3) of the Internal Revenue Code of 1954, as amended.
 
2. Restrictions and Exclusions
Proposed §  203.20 restates the statutory restrictions on prescription drug sales by hospitals, health care entities, and charitable institutions (section 503(c)(3) of the act). These restrictions reflect a congressional finding that the resale of prescription drugs by health care entities at below wholesale prices had helped to fuel the drug diversion market and that such sales constituted an unfair form of competition to legitimate wholesalers and retailers paying the prevailing market prices. (See sec. 2(7), PDMA.)
The statute does not distinguish sales made at the average wholesale price (AWP) and those made at below AWP or at more than the AWP. The sales restrictions apply to all sales, purchases, or trades by hospitals, health care entities, and charitable institutions. Sales of any human prescription drugs purchased by a hospital or other health care entity, or donated or supplied at reduced cost to a charitable institution, are prohibited unless excepted by section 503(c)(3)(B) of the act or exempted under proposed § §  203.22, 203.23, or 203.24.
In its findings, Congress stated that it believed that these resales had helped to create an unacceptable risk that counterfeit, adulterated, misbranded, subpotent, or expired drugs would be sold to American consumers. (See sec. 2(8), PDMA.)
a. Hospital, health care entity, or charitable institution cannot be wholesaler. FDA has learned that some hospitals and health care entities, including physicians, have obtained licenses as wholesale distributors in an effort to circumvent the statutory restrictions against the sale of prescription drugs by hospitals, health care entities, and charitable institutions. Those hospitals and health care entities that have secured wholesale drug distributor licenses claim that the statutory restrictions are made inapplicable to them by the first clause of the last sentence of section 503(c)(3) of the act, which reads: "For purposes of this paragraph, the term "entity" does not include a wholesale distributor of drugs or a retail pharmacy licensed under State law * * *."
Such a reading is inconsistent not only with general rules of statutory construction, but with the intent of Congress as reflected in the legislative history. The legislative history, which addresses Congress' concern about donations to charitable institutions and institutional discounts for hospitals and health care entities, notes that some of these institutions had been sources of unfair competition and drug diversion, and explains that the statutory prohibition against the sale of drugs donated to or acquired at reduced price by charitable institutions or purchased by hospitals or health care entities is directed at preventing unfair profits through resales of such drugs. Congress said:
Section 503(c)(3) would prohibit resales of pharmaceuticals by hospitals and other health care entities or charitable organizations with certain exceptions. This provision is intended to cover resales by both for profit and nonprofit health care entities. These institutions typically receive discount prices, substantially below the average wholesale price (AWP) for pharmaceuticals, based on their status as a health care entity or charity. When hospitals or other health care entities obtain pharmaceuticals at favorable prices and then resell those drugs at a profit, they are unfairly competing with wholesalers and retailers who cannot obtain such a favorable price. Such resales defraud manufacturers, who are led to believe that the drugs are for the use of the health care entity. In any case, these resales reward the unscrupulous and penalize the otherwise honest and efficient wholesaler or retailer while fueling the diversion market.
 
(H. Rept. 100-76, pp. 12-13.)
FDA interprets the first clause of the last sentence of section 503(c)(3) of the act to mean that the general prohibition against drug sales by hospitals, health care entities, and charitable institutions was not intended to interfere with the operations of legitimate licensed prescription drug wholesalers and retail pharmacies. Section 503(c)(3) of the act does not open up a loophole for a hospital, health care entity, or charitable institution to avoid the statutory prohibition against drug sales simply by obtaining a wholesaler license.
Accordingly, proposed §  203.3(n) would state that a person cannot simultaneously be a "health care entity" and a retail pharmacy or wholesale distributor. The agency is also proposing to amend the State licensing guidelines by adopting the same  [*11846]  definition for "health care entity" at §  205.3(h).
If a charitable institution or a for-profit or nonprofit hospital or health care entity has a corporate for-profit subsidiary that is a wholesale distributor or retail pharmacy, or if it is part of a group in which there is common control over the hospital or health care entity and a wholesale distributor or retail pharmacy, then the charitable institution, hospital, or health care entity would be prohibited under section 503(c)(3) of the act and proposed § §  203.20 and 203.22 from transferring any prescription drug donated or supplied at reduced price to the charitable institution or purchased by the hospital or health care entity to the related wholesale distributor or retail pharmacy for further sale except for a sale under a valid prescription or for emergency medical reasons.
A charitable institution, hospital, or health care entity that has a wholesale distributor or retail pharmacy subsidiary, or one that is part of a group in which there is common control over the charitable institution, hospital, or health care entity and a wholesale distributor or retail pharmacy, should maintain books and records that provide sufficient audit trails to trace the purchase and sale of prescription drugs to ensure that no prescription drug donated or supplied at reduced price to the charitable institution or purchased by the hospital or health care entity is transferred to a related wholesale distributor or retail pharmacy for further sale except for a sale under a valid prescription or for emergency medical reasons.
b. Statutory exclusions. Proposed §  203.22 restates the statutory exclusions to the sales restrictions. They are: (1) The purchase or other acquisition of a drug for its own use by a hospital or other health care entity that is a member of a group purchasing organization from the group purchasing organization or from other hospitals or health care entities that are members of the organization; (2) the sale, purchase, or trade of a drug or an offer to sell, purchase, or trade a drug by a charitable organization to a nonprofit affiliate of the organization to the extent otherwise permitted by law; (3) the sale, purchase, or trade of a drug or an offer to sell, purchase, or trade a drug among hospitals or other health care entities that are under common control; (4) the sale, purchase, or trade of a drug or an offer to sell, purchase, or trade a drug for emergency medical reasons; or (5) 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.
c. Common control. One statutory exclusion to the general prohibition against resale of drugs by hospitals, health care entities, and charitable institutions permits the sale, purchase, or trade of prescription drugs among hospitals and health care entities that are under common control. There is no statutory definition of the term "common control," nor is the term mentioned in the legislative history.
The concept of common control can be found in other Federal regulatory schemes that were in use at the time PDMA was enacted into law. Both the Securities and Exchange Commission and the Environmental Protection Agency define "common control" to mean possession of the power to direct or cause the direction of the management and policies of a person or an organization, whether by ownership of stock, voting securities or rights, contract, or otherwise. (See 17 CFR 230.405 and 40 CFR 66.3(f).) FDA included this definition in the State licensing guidelines at §  205.3(f)(4). This proposal would adopt the same definition in proposed §  203.3(g).
d. Sales for emergency medical reasons. Section 503(c)(3) of the act permits the sale, purchase, or trade of prescription drugs by a hospital, health care entity, or charitable institution for emergency medical reasons. The statute states that "emergency medical reasons" includes transfers of a drug between health care entities or from a health care entity to a retail pharmacy undertaken to alleviate temporary shortages of the drug arising from delays in or interruptions of regular distribution schedules. The statute does not further elaborate on the term "emergency medical reasons."
FDA believes that it may be useful to specify some of the circumstances in which a sale for emergency medical reasons would be allowed. (See proposed §  203.3(k).)
FDA received a significant number of comments from providers of emergency care, including emergency medical services, ambulance corporations, fire companies, rescue squads, urgent care providers, emergency care physicians and technicians, and State emergency care agencies and commissions that advised the agency that hospital pharmacies have traditionally supplied drugs for emergency use by emergency medical services and licensed practitioners' offices operating in the general service area of the hospital. Several comments stated that wholesale distributors are reluctant to open small accounts to provide such drugs for emergency care, and that nearby hospital pharmacies are the logical providers. Moreover, the comments noted that many States encourage hospitals to supply drugs for emergency use to emergency medical services, and some States require emergency services to acquire their drugs exclusively from hospitals.
The proposal would allow sale of drugs by a hospital or health care entity to nearby emergency medical services such as ambulance services, rescue squads, and fire companies in the same State or service or marketing area for use in emergency treatment and to licensed practitioners for emergency office treatment. The proposal would also define emergency medical reasons to allow hospitals and health care entities to provide minimal emergency supplies to nursing homes.
In contrast, FDA believes that the exception for emergency medical reasons does not permit hospitals or health care entities regularly to sell to licensed practitioners prescription drugs that will be used for routine office procedures.
e. Government hospitals and health care entities. Proposed §  203.22(f) would also exclude the sale, purchase, or trade of prescription drugs by Federal, State, and local government hospitals and health care entities to other Federal, State, and local government hospitals or health care entities from the general prohibition against the sale, purchase, or trade of prescription drugs by a hospital, health care entity, or charitable institution.
Congress has established an extensive system of public hospitals and health care entities. These include hospitals, clinics, and dispensaries operated for the military by the Department of Defense; hospitals and clinics operated by the Veterans' Administration; and hospitals and clinics operated by the U.S. Public Health Service (including Indian Health Service hospitals and clinics).
In addition, State and local governments have established public health hospitals, clinics, and dispensaries, including drug treatment inpatient and outpatient facilities. These facilities operate under a variety of organizational structures. They may be owned and operated by governmental entities, or be organized as private corporations or associations under contract to State or local government agencies.
These health care entities may have interagency arrangements for the purchase and exchange of prescription drugs. Such facilities operate because of Federal, State, or local governmental  [*11847]  commitments to provide health care to particular classes of patients in response to specific client needs. Among these needs are the provision of services to people with low incomes, the distribution of vaccines, and the dispensing of antitoxins and blood derivatives in public health emergencies.
As noted, the adoption of the prohibition against sales by hospitals or health care entities was prompted in part because of the differential pricing structure that permits purchases by hospitals and health care entities at below wholesale prices and the resultant temptation to resell drugs so acquired at a profit. However, there is no financial incentive for a Federal, State, or local government hospital or health care entity to sell prescription drugs purchased at below wholesale prices because any profit from such a sale would go to the Federal or State treasury. Accordingly, FDA believes that there is little likelihood that permitting Federal, State, or local government hospitals and health care entities to sell prescription drugs to other Federal, State, or local government hospitals and health care entities would lead to the kinds of abuses that PDMA was designed to end.
Therefore, proposed §  203.22(f) would exclude such transactions from the general prohibition against resales by hospitals and health care entities and thus permit Federal, State, or local government hospitals and health care entities to sell drugs to other Federal, State, or local government hospitals and health care entities.
FDA has been asked whether a State or local government agency, which, under a contract or memorandum of agreement, sends or allows some of its patients to be treated at a private local clinic or other health care entity, may transfer prescription drug products to such a facility to be dispensed to patients. In other words, would such a transfer violate the prohibition against the sale, purchase, or trade of prescription drugs by a hospital, health care entity, or charitable institution?
FDA advises that if a State or local government agency functions as or operates a hospital, health care entity, or charitable institution, and a private health care entity is bound by a contractual agreement to the State or local government agency, then the State or local government hospital or health care entity may sell prescription drugs to the contract private health care entity provided that the prescription drugs sold are only used to serve government patients and programs. The State or local government hospital or health care agency supplying the drug and the contract health care entity would be obligated to implement appropriate controls to ensure that the drugs sold by the Government hospital or health care entity to the contract health care entity are dispensed to patients in the Government program and not diverted or sold to other patients or otherwise used for non-Government purposes.
If the State or local government agency does not function as or operate a hospital, health care entity, or charitable institution, and is acting as a prescription drug wholesaler, the prohibition against the sale of prescription drugs by a hospital, health care entity, or charitable institution would not be applicable.
 
3. Revocation of Acceptance, Reshipment, and Returns
FDA proposes to clarify the circumstances under which hospitals, health care entities, and charitable institutions may, without violating section 503(c)(3) of the act, return or ship back prescription drugs to the manufacturer or distributor from which they were purchased.
In particular, proposed § §  203.23 and 203.24 would, respectively, describe the conditions by which hospitals, health care entities, and charitable institutions may: (1) Revoke acceptance of any prescription drug received because of an ordering or delivery mistake and ship them back to the manufacturer or distributor, and (2) return a drug to the manufacturer or distributor.
A number of persons who submitted comments to the PDMA docket questioned the effect of the new statutory language on commercial practice in the pharmaceutical industry. Several persons argued that the sales provisions in the Uniform Commercial Code treat a sale as completed once a nondefective product has been ordered, delivered, and paid for, unless specific contractual provisions make the sale conditional or revocable. Several persons urged that FDA view a return for cash or credit after a completed sale as a new and prohibited sales transaction.
However, many other comments to the agency in the months after passage of PDMA observed that under common commercial practice in the pharmaceutical industry, manufacturers and wholesale distributors permit returns and urged that this practice be allowed to continue. FDA is aware that hospital, health care entity, or charitable institution pharmacies, and distributors sometimes return products because of overstocks, changes in institutional formularies, the death of a patient for whose use a drug product was acquired, or other reasons. The comments received by the agency argued that to permit returns would both help to keep down the costs of medical care and reduce the risk that adulterated or misbranded drugs would find their way into the diversion market.
FDA has tentatively concluded that it should, under specified conditions, allow drug products to be shipped back or returned to the manufacturer or distributor, and this tentative conclusion is reflected in proposed § §  203.23 and 203.24.
Under proposed §  203.23, a hospital, health care entity, or charitable institution could revoke a sale and purchase transaction because of a mistake in ordering or delivery and ship the prescription drug back, provided: (1) The hospital, health care entity, or charitable institution ships the drug back within 10 working days of receipt; (2) the reshipment is made under proper storage, handling, and shipping conditions; and (3) if reshipped to the wholesale distributor, the hospital, health care entity, or charitable institution provides written notice to the manufacturer of the revocation and reshipment.
The proposal would require that the manufacturer be notified of the reshipment so that any chargebacks to the manufacturer by the wholesale distributor or special price reduction credited by the manufacturer to the wholesale distributor would be factored into the credit or refund given the distributor. This is intended to prevent windfall profits from the return of a specially priced drug to the wholesale distributor.
Under proposed §  203.24, a hospital, health care entity, or charitable institution could return a product it had purchased from a manufacturer or wholesale distributor, provided that: (1) The hospital, health care entity, or charitable institution notifies the manufacturer that the prescription drug product has been returned to the wholesale distributor; and (2) the hospital, health care entity, or charitable institution fills out a credit memo. Proposed §  203.24 would require the hospital, health care entity, or charitable institution to send a copy of the credit memo to the manufacturer, for the same reasons that notification of the manufacturer is required in the event of a revocation and reshipment, i.e., so that any chargebacks or reduced prices will be factored into any credit or refund to prevent windfall profits from the transaction.
Proposed § §  203.23 and 203.24 would both require detailed documentation to  [*11848]  provide the kind of accountability contemplated by the act to help ensure against diversion. To ensure that returned drugs remain safe and effective, both proposed sections would require that drugs returned to a manufacturer or wholesale distributor be kept under proper conditions for storage, handling, and shipping, and that written documentation reflecting the maintenance of proper conditions be provided to the manufacturer or wholesale distributor to which the drugs are returned.
Under the proposal, the value of any credit, refund, or merchandise exchanged for the returned product could not exceed the purchase price.
For purposes of clarification and to ensure that the State licensing regulation and this proposed rule, when adopted, are consistent, the agency is also proposing to amend the definitions in the State licensing guidelines at §  205.3(f) by adding two additional exceptions to "wholesale distribution" for the reshipment of drugs, when conducted in accordance with §  203.23, and drug returns, when conducted in accordance with §  203.24.
 
D. Samples
To provide accountability and oversight in the sample distribution process, PDMA established in section 503(d) of the act a strict system of controls over the distribution of prescription drug samples, which are defined in section 503(c)(1) of the act. Under the statutory scheme, no person could distribute any drug sample, except for a manufacturer or distributor who distributed drug samples in accordance with specific requirements and in response to a written request from a licensed practitioner.
Under sections 503(d)(1) and (d)(2) of the act, both manufacturers and distributors could engage in sample distribution if certain requirements were followed. However, section 4(2) of PDA further restricted the persons who can engage in distribution of drug samples by amending section 503(d)(1) and (d)(2) of the act to restrict sample distributions to manufacturers and authorized distributors of record. This amendment is demonstrative of the intent of Congress, as reflected elsewhere in PDMA and PDA, to restrict the activities of drug distributors who are not authorized distributors of record. Proposed § §  203.30, 203.31, and 203.33 through 203.39 are consistent with this amendment.
Under the revised statutory scheme, no person may distribute any drug sample, except for a manufacturer or authorized distributor of record who distributes drug samples in accordance with specific requirements and in response to a written request from a licensed practitioner.
Section 503(d)(1) of the act states that, for purposes of this subsection, the term "distribute" does not include the providing of a drug sample to a patient by a practitioner licensed to prescribe such drug, by a health care professional acting at the direction and under the supervision of such a practitioner, or the pharmacy of a hospital or of another health care entity acting at the direction of such a practitioner who received the drug sample in accordance with the act and regulations. The definition of "distribute" in proposed §  203.3(h) reflects this statutory exclusion.
PDMA sets up two different sample distribution systems, depending on the mode of delivery: (1) By mail or common carrier, and (2) by means other than mail or common carrier, i.e., representative or detailer.
If a sample is delivered by mail or common carrier, the statute requires the recipient to execute a written receipt when the drug sample is delivered and return the receipt to the manufacturer or authorized distributor of record from which the drug sample was received. If the sample is delivered by a representative, a number of additional procedures are required by the statute that pertain to storage and handling, inventories, recordkeeping, reporting of thefts and significant losses, notification of convictions of representatives for drug sample violations, and accountability. The statute specifies minimum requirements for the contents of written request forms and details certain recordkeeping and reporting requirements.
 
1. Requirements for Drug Sample Distribution
The requirements for distribution of drug samples by manufacturers and authorized distributors of record by mail or common carrier are set forth in proposed §  203.30. The requirements for distribution of drug samples by representatives are set forth in proposed §  203.31. The proposed sections provide detailed requirements for written request forms, receipts, and recordkeeping.
Most of these requirements are statutory; however, FDA has tentatively concluded that clarification of some of the statutory requirements is desirable. FDA also has tentatively concluded that other requirements should be imposed to help ensure smooth operation of the system, effective enforcement, effective accountability and oversight of drug sample distribution, and provide adequate safeguards against drug sample diversion.
 
2. Contents of the Sample Request Forms
Proposed § §  203.30 and 203.31 would require the written request form for drug samples to bear certain information: (1) The name, address, professional title, signature of the practitioner making the request; (2) the practitioner's State license number or the Drug Enforcement Administration (DEA) identification number; (3) the proprietary or established name and strength of the drug sample requested; (4) the quantity requested; (5) the name of the manufacturer of the drug sample and the authorized distributor of record, if the drug sample is requested from a distributor; and (6) the date of the request.
A number of comments suggested that it is sometimes difficult for a manufacturer or distributor to determine whether or not a particular person who wishes to receive drug samples is a licensed practitioner. FDA has added the requirement that the request form bear the practitioner's State license or DEA identification number to assist the manufacturer or distributor in determining whether or not a person is a licensed practitioner.
The statute requires a request form to bear the "identity" of the drug sample being requested. FDA has clarified the meaning of "identity" in the proposed rule by specifying that the request form bear the proprietary or established name and strength of the requested sample.

PDMA requires that the request form bear the name of the manufacturer of the drug. However, where the statute also permits an authorized distributor of record to distribute drug samples, the identity is incomplete without naming both the manufacturer and distributor. In that circumstance, FDA proposes to require that the name of the distributor as well as the manufacturer be made part of the sample request form.
The statute also permits delivery of a drug sample to the pharmacy of a hospital or other health care entity at the request of a licensed practitioner. However, the statute does not state how that request for delivery should be made. FDA has tentatively concluded that the name and address of the intended recipient should be part of the request form. This conclusion is reflected in the requirements in proposed § §  203.30 and 203.31 that, if the request is being made by a licensed practitioner for delivery of a drug sample to a hospital or health care entity pharmacy, the name and address  [*11849]  of the intended recipient be included on the request form.
 
3. Drug Sample Receipts
Proposed § §  203.30 and 203.31 would require the execution of a written receipt by the recipient upon delivery of a drug sample. The proposed sections also set out the contents of the receipt.
The statute requires the execution of a receipt upon delivery of a drug sample by mail or common carrier to establish an audit trail for drug sample orders and deliveries and to ensure that drug samples ordered are received. The statute does not require the execution of a written receipt for samples delivered by representatives in the apparent belief that a representative always delivers a drug sample to a licensed practitioner at the same time that the licensed practitioner signs the request form.
A number of comments suggested that samples frequently are not delivered at the time of the request, i.e., some time elapses between request and delivery, even when a representative personally delivers the drug sample. Sometimes the period of time is only a few minutes, but often it may be hours, days, or weeks. In some instances, a representative may receive a request for a drug sample at one sales call and deliver the requested sample at a later date. In these cases, because of lapses of memory, mistake, or because a diversion scheme may be underway, the samples delivered may not always match the request. Accordingly, 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 § §  203.30 and 203.31.
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.
Proposed § §  203.30(c) and 203.31(c) state that a receipt is to be on a form designated by the manufacturer or distributor. If the drug sample is received by the requesting practitioner, both proposed sections would require that the receipt 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. If the drug sample is received by the pharmacy of a hospital or other health care entity at the request of a licensed practitioner, both proposed sections would require the receipt 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. FDA believes this information is necessary to ensure that the sample received is the same as the sample requested.
 
4. Additional Requirements For Delivery of Drug Samples by Representatives
PDMA provides that manufacturers and distributors that utilize representatives for the delivery of drug samples must abide by a number of additional requirements. These additional requirements are intended to guard against the kinds of abuses that Congress' findings stated had been an integral part of the drug sample delivery system and had led to large-scale drug sample diversion.
a. Inventories of drug samples of manufacturers' and distributors' representatives. The statute provides that each drug manufacturer or distributor that engages in drug sample distribution is required to conduct, at least annually, a complete and accurate inventory of all drug samples in the possession of representatives (21 U.S.C. 353(d)(3)(C)). The inventory is intended to guard against drug sample diversion by providing manufacturers and distributors information that will permit them to identify diverters and take appropriate action and provide data for FDA enforcement activities.
The statute does not specify what is meant by such an inventory, nor how it is to be conducted and reported. 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 and a reconciliation report is prepared that relates the latest inventory to the most recent prior inventory and to drug samples acquired and distributed in the interim.
Accordingly, proposed §  203.31(d) would require the manufacturer or distributor to inventory all drug samples in the possession of a manufacturer's or distributor's representative, and keep a record of the inventory. The record would be required to identify all drug samples by established or proprietary name, dosage strength, and number of sample units of each drug sample in stock.
The proposal would require that the manufacturer or distributor reconcile the number of drug samples on hand with the number received during the reporting period. The reconciliation report would be required to include: (1) A report of the physical count of the most recently completed prior inventory; (2) 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 established or proprietary name, dosage strength, and number of sample units received; (3) 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 established or proprietary name, dosage strength, lot or control number, and number of sample units shipped; and (4) an explanation for any significant loss.
To ensure impartiality, the proposal would also require that the inventory and reconciliation reports be conducted and prepared by persons other than the representatives being inventoried or their supervisors or managers in their direct line of supervision or command.
To guard against drug sample diversion, the proposed section would require manufacturers and distributors to evaluate carefully any apparent discrepancy or significant loss in the inventory and reconciliation, and to investigate fully any significant loss that cannot be justified.
b. Lists of manufacturers' and distributors' representatives. PDMA requires that each manufacturer or authorized distributor of record who distributes drug samples maintain a list of the names and addresses of its representatives who distribute drug samples and of the sites where drug samples are stored. The proposal restates this statutory requirement (§  203.31(e)).
c. Notification if representative is convicted of violations. The statute requires drug manufacturers or distributors of record to report to FDA any conviction of a representative for violations of section 503(c)(1) of the act or a State law because of the sale,  [*11850]  purchase, or trade of a drug sample or the offer to sell, purchase, or trade a drug sample. The proposal restates this statutory requirement (§  203.31(f)).
 
5. Drug Sample Storage and Handling Requirements
FDA has already excluded the distribution of drug samples by representatives from the definition of "wholesale distribution" in §  205.3(f)(7), and the agency is proposing to adopt this exclusion in the definition of "wholesale distribution" in proposed §  203.3(y). In view of this, representatives are not required to be licensed as wholesale distributors by the States. PDMA requires manufacturers and authorized distributors of record to store all drug samples under conditions that will maintain their stability, integrity, and effectiveness, and ensure that the drug samples are not contaminated, deteriorated, or otherwise adulterated. Proposed §  203.32 reflects this requirement.
A representative, as an agent of the manufacturer or authorized distributor of record, is bound by the same standard, and is required to take adequate precautions to ensure the safety and efficacy of any drug samples the representative distributes. Generally, if a representative follows the labeling and compendial requirements for storage and handling of a particular prescription drug in handling samples of that drug, the safety and efficacy of the drug sample may be assured.
 
6. Drug Sample Forms
A number of persons posed questions regarding drug sample request and receipt forms. FDA does not contemplate developing its own forms for sample request and receipt, and instead intends to rely on manufacturers and distributors to develop appropriate forms. Accordingly, any written request or receipt form developed by a manufacturer or authorized distributor of record that complies with the requirements of proposed §  203.33 would be acceptable to FDA if it contains the information and any signature required in this section.
The agency wishes to encourage transmission and receipt of sample request and receipt forms by the most efficient and expeditious means. Accordingly, proposed §  203.33 would permit such forms to be delivered by mail, common carrier, or private courier or to be transmitted photographically or electronically (i.e., by telephoto, wirephoto, radiophoto, facsimile transmission (FAX), xerography, or electronic data transfer) or by any other system, provided that the method for transmission meets the security requirements set forth in proposed §  203.60(d).
 
7. Written Policies and Procedures and Other Requirements for Drug Sample Distribution
FDA received a number of questions and comments from drug manufacturers and distributors seeking assistance in developing appropriate administrative systems for distributing drug samples. There are a wide variety of administrative systems in use, and enforcement has been complicated by the multiplicity of sample distribution procedures. Although standardization is not necessary, the agency believes that clear internal administrative systems are essential to ensure that sample distribution is carried out efficiently and that the statutory requirements are met.
In addition, FDA expects that manufacturers and distributors will have administrative systems in place to review all losses and thefts so that patterns that may indicate the possibility of drug sample diversion will be detected. The agency believes that this is consistent with Congress' intent that manufacturers and distributors develop adequate audit and security systems to detect and investigate sample losses and thefts. (H. Rept. 100-76, p. 20; S. Rept. 100-202, p. 9.)
Accordingly, under proposed §  203.34, each manufacturer or authorized distributor of record that distributes drug samples would be expected to adopt an administrative system to monitor losses and thefts.
Also, proposed §  203.34 would require drug manufacturers and distributors to establish, maintain, and adhere to written policies and procedures describing its administrative systems for sample distribution. The proposed section contemplates that each manufacturer's or distributor's written policies and procedures would describe its administrative system for: (1) Distributing drug samples by mail or common carrier, including methodology for reconciliation of requests and receipts; (2) distributing drug samples by means other than mail or common carrier; (3) conducting its inventory of drug samples under proposed §  203.31(d), including an inventory schedule; (4) auditing and detecting falsified or incomplete drug sample records; (5) identifying any significant loss of drug samples and notifying FDA of the loss; (6) monitoring any loss or theft of drug samples; and (7) storing drug samples by representatives.
 
8. Standing Requests
Both the House Report and Senate Report state that it is the intent of Congress that separate written requests be made each time that samples are requested to be delivered and that standing requests do not fulfill the requirements of the statute, except that the Senate Report states that FDA may provide by regulation for the delivery by mail of a small number of samples for strictly limited periods of time. (H. Rept. 100-76, p. 14; S. Rept. 100-202, p. 6.)
Proposed §  203.35 would require that separate written requests be made for each sample or group of samples and does not allow for open-ended or standing requests to order drug samples.
The proposed section states, however, that the agency does not consider standing requests to include an arrangement by which a licensed practitioner requests in writing that a specified number of drug samples be delivered over a period of not more than 6 months, with the actual delivery dates for parts of the order to be set by subsequent communication.
 
9. Use of Fulfillment Houses, Shipping and Mailing Services, Other Contractors, and Comarketing Agreements
FDA understands that some manufacturers and distributors employ third parties to meet some of the requirements imposed on them under PDMA. Third parties may include contractors such as fulfillment houses (companies that receive and fill orders), mailing services, and other contractors. In addition, some manufacturers and distributors enter into comarketing agreements in which one manufacturer or its representatives undertake a contractual commitment to provide specified services relating to drug marketing for one or more other manufacturers or distributors. FDA does not regard the use of third parties or entry into comarketing agreements as absolving a manufacturer or distributor from its responsibility for complying with the statute and regulations pertaining to the distribution of its drug samples.
Accordingly, proposed §  203.36 would make clear that a manufacturer or authorized distributor of record that uses a fulfillment house, shipping or mailing service, or other third party to fulfill some of the requirements of PDMA, or engages in a comarketing agreement with another manufacturer, remains responsible for creating and maintaining all requests, receipts, forms, reports, and records required under PDMA, PDA, and proposed part 203.
The agency will give a manufacturer or distributor that contracts with a third  [*11851]  party to maintain some or all of its records up to 48 hours to produce requested forms, reports, records, or other required documents.
 
10. Investigation and Notification Requirements
In proposed §  203.37, FDA proposes to codify the requirements and procedures for undertaking investigations and making reports and notifications to the agency regarding sample distribution.
a. Drug sample diversion. To ensure against drug sample diversion, proposed §  203.37(a) would impose an investigation and reporting requirement on a manufacturer or distributor who has reason to believe that any person has falsified drug sample requests, receipts, or records. A full and complete investigation would have to be undertaken, and the manufacturer or distributor would be required to report to FDA that such an investigation is under way and that it has completed such an investigation. The proposal would require the report to include the reason for the investigation and the results of the investigation.
Because persons who falsify drug sample requests may be prosecuted under Title 18 of the United States Code, and because falsifications are often associated with drug diversion, FDA is proposing to require manufacturers and distributors to report such offenses to the agency.
Accordingly, the proposal would require that a manufacturer or distributor notify the agency of any falsification of drug sample requests, receipts, or records, no later than 5 working days of learning of the falsification. The proposal would permit an initial notification to be made by telephone or in writing, with a complete written report required not later than 30 days after the date of the initial telephone or written notification.
b. Significant loss and known theft. PDMA requires a manufacturer or distributor that distributes drug samples to notify FDA of any significant loss of drug samples and any known theft of drug samples (21 U.S.C. 353(d)(3)(D)). FDA believes that enforcement would be facilitated if the manufacturer or distributor promptly notifies the agency upon becoming aware of a significant loss or theft. Accordingly, proposed §  203.37(b) would require a manufacturer or distributor to notify FDA within 5 working days of becoming aware of such a loss or theft.
FDA is proposing in §  203.39 that charitable organizations be permitted to solicit and receive surplus drug samples from licensed practitioners. As part of this program, FDA proposes to require that a charitable institution that receives donated drug samples from a licensed practitioner also be required to notify FDA within 5 working days of becoming aware of a loss or theft.
The reporting of any significant loss of drug samples is critical to the success of diversion control. Although a sample can inadvertently become adulterated through mishandling, spoilage, or exposure to the elements, and although samples are reported as stolen or lost from time to time, some representatives reportedly have used false claims of damage, theft, or loss to divert drug samples into illicit commercial channels.
FDA intends this requirement to mean that the agency is to be advised of actual, physical losses, but not insignificant accounting mistakes. The agency does not seek to receive reports concerning minor mathematical errors that are caught and corrected in the normal course of business. These are not significant losses that would trigger the reporting requirement. FDA seeks comment on how to distinguish between significant losses and minor accounting or inventory errors.
The agency is mindful of the difficulty of establishing a threshold for significant loss and requests comment on this issue and examples of situations that may and may not be appropriate reportable losses. FDA currently believes that a small discrepancy in the total inventory of a multimillion dollar company may not be significant and thus may not trigger the reporting requirement, but the loss of a hundred tablets of a particular drug by one sales representative in one quarter might be significant. Similarly, a bookkeeping imbalance may not be a loss, as long as it represents small inventory discrepancies that are likely to be accounted for in the normal course of audits or other methods of inventory control.
FDA is not proposing to establish any "tolerance" level for sample losses below which no report is required. Each manufacturer or distributor is required to establish its own threshold for determining when inventory not accounted for is significant. This threshold should be derived from the firm's past experience in sample distribution and inventory and should be based on the level of accuracy of its internal audit and security system.
Some manufacturers or distributors might be able to set a historically validated statistical baseline for the minimal amounts of shrinkage that might be caused by routine accounting errors, mistakes, or losses, and a statistical baseline for the frequency of occurrences that might routinely happen with a particular representative or product. However, any loss of drug samples exceeding the number or frequencies of the established baselines must be reported. In addition, any loss possibly associated with falsification of drug sample inventory or distribution records, or connected with diversion activity, suspicious circumstances, or theft must be investigated and reported.
When FDA becomes aware of a significant loss or theft of drug samples, it may conduct its own investigation in cooperation with or independent of the manufacturer's or distributor's investigation.
FDA is proposing that an initial notification of a significant loss or known theft be made by telephone or in writing, with a complete written report required not later than 30 days after the date of the initial notification.
c. Conviction of a representative. PDMA requires a manufacturer or distributor to notify FDA of any conviction of its representatives for a violation of section 503(c)(1) of the act or any State law involving the sale, purchase, or trade of a drug sample or the offer to sell, purchase, or trade a drug sample (21 U.S.C. 353(d)(3)(E)).
FDA believes that enforcement would be facilitated if prompt notice of such a conviction is provided to the agency. Accordingly, proposed §  203.37(c)(1) would require a manufacturer or distributor to notify FDA within 5 working days of becoming aware of the conviction of one or more of its representatives for such a violation.
To facilitate such reports, proposed §  203.37(c) would permit an initial notification of such a conviction to be made by telephone or in writing, but would require a complete written report to be submitted no later than 30 days after the date of the initial notification.
d. Selection of individual responsible for drug sample information. PDMA requires a manufacturer or distributor who distributes drug samples to provide FDA with the name and telephone number of the individual responsible for responding to a request for information respecting drug samples (21 U.S.C. 353(d)(3)(F)).
FDA believes that enforcement would be facilitated if that information is transmitted to the agency shortly after a designation is made. Accordingly, proposed §  203.37(d) would require a manufacturer or distributor to notify FDA in writing within 30 days of the selection of such an individual and would also require the manufacturer or distributor to supply the individual's  [*11852]  business address to expedite easy communication.
e. Whom to notify at FDA. The proposed rule would set forth the addresses to which notifications and reports are required to be made. Under the proposal, reports and notifications are required to be made to the Division of Drug Quality Evaluation (HFD-330), Center for Drug Evaluation and Research, for human prescription drugs; or the Division of Inspections and Surveillance (HFM-650), Center for Biologics Evaluation and Research, for human biological prescription drug products.
 
11. Sample Lot or Control Numbers
A drug sample is a drug product as defined in 21 CFR 320.1(b). In 21 CFR 201.10(i)(1)(iii) and 201.18 of the general labeling regulations and 21 CFR 211.130(b) of the current good manufacturing practice (CGMP) regulations, the label of drug products is required to bear an identifying lot or control number capable of yielding the complete manufacturing history of the package. Persons subject to the CGMP regulations are required under 21 CFR 211.196 to maintain distribution records containing lot or control numbers.
Maintenance of records of lot numbers on drug samples will help provide the kind of accountability and oversight of prescription drug sample distribution that PDMA is intended to provide. A comment to the docket from the Department of Health and Human Services' Office of the Inspector General not only endorsed this view, but suggested that maintenance of drug sample distribution records, including lot numbers, would be important for enforcement purposes.
Accordingly, proposed §  203.38 would require the manufacturer or authorized distributor of record of drug samples to include in the drug sample labeling, the label of the sample unit, and distribution records identifying lot or control numbers that will permit the tracking of the distribution of each drug sample unit from the point of its manufacture to the representative or, if delivered by mail or common carrier, to the licensed practitioner. (In addition, as discussed earlier, proposed § §  203.30 and 203.31 also require that drug sample request and receipt forms include lot or control numbers.)
 
12. Sample Labels
FDA has been advised that some manufacturers and distributors use ordinary stock packages as drug samples. The agency believes that this practice makes it difficult to distinguish samples from ordinary stock and contributes to drug diversion. FDA believes that it is essential that drug samples be clearly and easily recognizable.
Accordingly, proposed §  203.38(c) would require that each sample unit bear a label that clearly denotes its status as a drug sample. An appropriate designation would include (but not be limited to) the word "sample" and the terms "not for sale" and "professional courtesy package." The proposed section would also provide that drug products that are labeled or imprinted as samples are deemed to be drug samples within the meaning of the act.
An article that meets the statutory definition of a drug sample that fails to bear the label required in proposed §  203.38(c) would still be a sample despite the absence of the required label.
 
13. Disposition of Drug Samples by Licensed Practitioners
PDMA permits manufacturers and distributors to distribute drug samples to licensed practitioners and to hospital or health care entity pharmacies at the request of a licensed practitioner, provided certain documents and records are created and maintained.
PDMA restricts drug sample distribution to "licensed practitioners" and to hospital or health care entity pharmacies at the request of a "licensed practitioner." A number of comments asked FDA to define the term "licensed practitioner." For purposes of proposed part 203, FDA would, in proposed §  203.3(o), define the term "licensed practitioner" to mean any person licensed by State law to prescribe drugs.
Physicians and surgeons, including osteopathic physicians and surgeons, are licensed to prescribe drugs in every State, as are dentists and dental surgeons. In most States, podiatrists and optometrists are licensed to prescribe certain drugs. In some States, pharmacists, physicians' assistants, paramedics, emergency medical technicians, certified nurse practitioners, certified nurse midwives, or other medical professionals or paraprofessionals may be licensed to prescribe drugs, sometimes on their own authority and sometimes on the authority of supervising physicians.
Some States limit the authority to prescribe prescription drugs to specific protocols or formularies for certain professionals or paraprofessionals. For those professionals and paraprofessionals, FDA follows the requirements of those States and considers the authority to request and receive drug samples to be similarly limited.
Section 503(d)(1) of the act provides that no person may distribute any drug sample unless the requirements set forth in paragraphs (d)(2) and (d)(3) of that section are followed. Paragraphs (d)(2) and (d)(3) set forth detailed requirements for manufacturers and authorized distributors of record to follow when they distribute drug samples by mail or common carrier and by representatives.
In the section-by-section analysis that the Senate and House of Representatives ordered to be published in the Congressional Record when PDA was introduced and passed, Congress stated that it did not intend this prohibition to restrict the provision of a drug sample to a patient by a licensed practitioner or by another person at the direction of a licensed practitioner in certain circumstances. (Congressional Record, August 10, 1992, p. S 12061-2; August 12, 1992, p. H 8107-8.) Consequently, in PDA, Congress amended section 503(d)(1) of the act to clarify the prohibition by stating that providing or dispensing a drug sample in certain circumstances is not considered distribution within the meaning of the statute. The clarification specifically excludes from the term "distribute" the provision 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, and (3) the pharmacy of a hospital or of another health care entity that received the drug sample in accordance with the act and regulations, and that is acting at the direction of the health care practitioner who requested the drug sample.
A licensed practitioner who provides a drug sample other than as set forth in section 503(d)(1) of the act is engaging in an act of distribution, and drug sample distributions may be undertaken only as permitted by PDMA.
FDA advises that PDMA and this proposed rule would permit a licensed practitioner to: (1) Dispense the drug sample as set forth in section 503(d)(1) of the act; (2) donate the drug sample to a charitable institution as provided for in proposed §  203.39; (3) return the drug sample to the manufacturer or distributor; or (4) destroy the drug sample.
FDA advises that any person, including a licensed practitioner, is prohibited from carrying out certain distributions of drug samples, including: (1) Selling, purchasing, or trading (or offering to sell, purchase, or trade) any drug sample; (2) requesting a manufacturer or distributor to deliver any drug sample to a retail pharmacy;  [*11853]  (3) delivering any drug sample to a retail pharmacy to be dispensed by the pharmacist to a patient of the licensed practitioner or other persons; (4) giving any drug sample to a retail pharmacy; or (5) donating any drug sample to any charitable institution, except as provided in proposed §  203.39.
PDA singles out dispensing of drug samples by health care professionals who act at the direction and under the supervision of licensed practitioners, and hospital or health care entity pharmacies that receive drug samples in accordance with the act and regulations and that act at the direction of the health care practitioners who request samples. Thus, Congress clearly intended to distinguish these persons from retail pharmacists. The pharmacist in a retail pharmacy is an autonomous professional who is licensed by the State and supervised by the State Board of Pharmacy and independently dispenses drugs to patients in response to a prescription written by a separate licensed practitioner.
A manufacturer or distributor is prohibited from delivering a drug sample to any retail pharmacy, and a retail pharmacy is barred from receiving any drug sample from any person.
FDA has been advised that some licensed practitioners have requested that drug samples be delivered to retail pharmacies in rural, isolated, or medically underserved areas for dispensing to the practitioner's patients. FDA views this practice as being inconsistent with the accountability and oversight requirements imposed on sample distribution by PDMA. The agency believes it makes enforcement of the sample distribution sections difficult, and is a potential source of drug diversion. Accordingly, FDA advises that a practitioner should not request delivery of a drug sample to a retail pharmacy and that a retail pharmacy should not accept a drug sample from a licensed practitioner or from a manufacturer or distributor to be dispensed by the pharmacist to a practitioner's patients or to other persons.
To cut off a potential source of drug diversion and promote enforcement of PDMA, FDA advises licensed practitioners that they should return adulterated or misbranded drug samples to the manufacturer or distributor, or destroy them. Examples of drug samples that may be adulterated or misbranded include, but are not limited to: (1) Samples that have gone beyond the labeled expiration date; (2) samples that are obviously discolored, soiled, spoiled, or otherwise deteriorated; (3) samples with mutilated or damaged packaging; and (4) samples with labeling that is torn, adjusted, or modified.
 
14. Donation of Drug Samples by Licensed Practitioners to Charitable Institutions
FDA is aware of the practice whereby some licensed practitioners give significant quantities of drug samples to charitable institutions, such as free clinics, charity nursing homes, and charitable health care entities. Donated drug samples are then dispensed by staff of the charitable institutions to patients or given to domestic or overseas missions or other charitable institutions.
Some charitable institutions actively solicit and collect donations of drug samples from licensed practitioners, and it is not uncommon for charitable institutions to rely on donated drug samples as a significant source of prescription drugs for patient care. In response to concerns about this practice, FDA established procedures for drug sample donations in Compliance Policy Guide (CPG) 7132.08, "Collection and Charitable Distribution of Drugs," issued on October 1, 1980.
FDA continues to be concerned about drug sample donations. The agency believes that ongoing donations of drug samples by licensed practitioners to charitable institutions could be considered as being inconsistent with the objectives of accountability and oversight of sample distribution that PDMA is designed to provide. The agency is concerned that this practice could make enforcement of the sample distribution sections difficult and provide an avenue for drug diversion.
One of the principal purposes of PDMA was to prevent drug diversion. The easiest way to ensure that prescription drug samples will not be diverted by charitable institutions would be to prohibit such institutions from possessing them. However, Congress did not choose to do so. Indeed, PDMA explicitly allows prescription drug samples to be delivered by a manufacturer or distributor to the pharmacy of a hospital or health care entity at the written request of a licensed practitioner. Such a hospital or health care entity may be operated for profit or as a charitable institution. PDMA is silent, however, as to whether or not there are other legitimate means by which a charitable institution can acquire prescription drug samples.
The operations of not-for-profit hospitals, health care entities, and charitable institutions were closely scrutinized by Congress before the passage of PDMA. Congress identified sales of drugs acquired at below-wholesale prices by hospitals, health care entities, and charitable institutions as a source of unfair competition for prescription drug wholesalers who are required to pay the average wholesale price, and suggested that such sales could be a source of drug diversion. (See sec. 2(7), PDMA.)
Congress also identified the sale of prescription drug samples as a source of diversion (see sec. 2(6), PDMA), but did not suggest that charitable institutions were peculiarly likely to engage in this abuse. Instead, Congress sought to balance the need for restrictions that would prevent unfair competition and put an end to diversion of prescription drug samples with the goals of providing prescription drugs to all who need them and permitting the distribution, with appropriate restrictions, of prescription drug samples to patients.
Congress did not alter this balance when in PDA, it revised the PDMA sample distribution restrictions.
FDA has preliminarily concluded that development of a system that would permit licensed practitioners to donate excess quantities of prescription drug samples to charitable institutions for dispensing to patients or for further distribution to domestic or overseas charitable institutions for dispensing to patients would be consistent with PDMA, PDA, and the goal of providing adequate medical care to patients in need.
A system that would permit such donations with adequate restrictions would ensure wider opportunities for the provision of medical care, including prescription drugs, to patients in need, and would, if appropriate controls were established similar to those governing sample distribution, be consistent with the language and intent of the statute. Controls would serve the objectives of accountability and oversight in the act and minimize the potential for drug diversion.
Such a system would also prevent the waste of significant quantities of valuable prescription drugs that have been distributed as drug samples to licensed practitioners who have not used or dispensed them.
FDA believes that such a system should contain audit and security protection, similar to those required in the statute for requesting drug samples from manufacturers or distributors and delivering them to licensed practitioners, to provide accountability and oversight, and to protect the public against drug diversion.

In designing such a system, the agency has kept in mind that the day-to-day  [*11854]  operations of licensed practitioners, including the provision of prescription drugs to patients, are regulated primarily by the States. In addition, there is nothing in the legislative history of PDMA or PDA that would suggest that Congress intended FDA to become more deeply involved in the regulation of the activities of licensed practitioners, except to the extent necessary to ensure that drug samples are not diverted and that they do not, as a result, become adulterated or misbranded.
Accordingly, the agency is proposing to establish a system of drug sample donation controls in proposed §  203.39. Proposed §  203.39 would set up a system that would permit a licensed practitioner to donate a drug sample to a charitable institution for dispensing to a patient of that institution or for distribution to another properly enrolled charitable institution for subsequent dispensing to patients, provided that the institution is properly enrolled and certain requirements are met.
Under proposed §  203.39, a charitable institution that wishes to solicit or receive drug samples would be required to: (1) Become properly enrolled by notifying the agency of its intention to solicit and receive drug sample donations and obtaining a central file number; and (2) maintain records of drug samples received as donations and subsequently dispensed or distributed to other charitable institutions.
A recipient charitable institution must provide written certification of compliance with all regulations to a licensed practitioner or charitable institution that provides a drug sample before receiving any drug sample donation.
Under the proposal, the charitable institution or organization (defined as one that has been granted tax exempt status by the Department of the Treasury under the requirements of section 501(c)(3) of the Internal Revenue Code of 1954) would be required to enroll with FDA. A charitable institution would be enrolled when it has notified the appropriate FDA district office that it intends to solicit and receive drug samples, has made application to the district office for a central file number, and has received the number. A charitable institution would also be required to be licensed by the State, if required by State law, and otherwise conform to State law.
Proposed §  203.39(b) would establish procedures that the charitable institution would be required to follow for receiving, holding, dispensing, and distributing donated drug samples. These requirements closely parallel the statutory and proposed regulatory requirements for request and delivery of drug samples by manufacturers and distributors to licensed practitioners.
Under proposed §  203.39(b)(1), a recipient charitable institution would be required to provide a written identification document to any employee or agent authorized to act on behalf of the institution in soliciting or receiving donations of prescription drug samples. The employee or agent identification document would be valid for a limited term, but could be renewed.
FDA is not proposing to delineate the form and content of the required identification document, but it should be sufficient to readily identify the agent or employee of the charity and to establish that he or she has the authority to solicit and receive drug sample donations.
Such an identification document would be acceptable to the agency, for example, if it: (1) Would be effective for a fixed term, e.g., 1 year, and would bear an expiration date; (2) would include the name, address, and central file number of the charitable institution; (3) would exhibit the name, signature, and photograph of the authorized employee or agent; and (4) would display an affirmative statement that the employee or agent identified on the document is authorized by the institution to solicit and receive donations of prescription drug samples on behalf of the institution.
Proposed §  203.39(b)(2) would require each recipient charitable institution to maintain a current listing of all agents or employees authorized to solicit and receive drug samples on behalf of the institution. The listing would also be required to include the name and telephone number of the authorized agent or employee in charge of prescription drug sample solicitation, receipt, and redistribution.
One problem associated with drug sample diversion has been the practice of "shucking" drug samples (separating drug sample dosage units from their sample packaging (usually blister packs, cards, or small boxes) and sample labeling) and repackaging them (often in plastic bags or "baggies," or in other nonstandard containers with other sample dosage units from the same or different drug sample lots or production runs). This repackaging process may be accompanied by physical tampering with the sample dosage units with sharp or abrasive instruments or with solvents to remove imprints denoting their status as samples. Because this practice adulterates and misbrands the samples, proposed §  203.39(b)(3) would require that a drug sample could be donated by a licensed practitioner or donating charitable institution and could be received by a charitable institution only in its original, unopened packaging with its labeling intact.
Proposed §  203.39(b)(4) would permit delivery of a donated drug sample to a recipient charitable institution by mail or common carrier, collection by an authorized agent or employee of the recipient charitable institution, or personal delivery by a licensed practitioner or an authorized agent or employee of the donating charitable institution. It would direct that the donor place the donated drug samples in a sealed carton for delivery to or collection by the recipient institution.
Under proposed §  203.39(b)(5), a donated drug sample could not be dispensed to a patient or be distributed to another charitable institution until a licensed practitioner or registered pharmacist at the recipient charitable institution has examined it to confirm that the drug sample delivered matches the donation record and that any adulterated or misbranded drug sample is eliminated. The recipient would be required to reject any drug sample that: (1) Is out of date; (2) has labeling that has become mutilated, obscured, or detached from the drug sample packaging; (3) shows evidence of having been stored or shipped under conditions that might adversely affect its stability, integrity, or effectiveness; (4) is for a drug product that has been recalled or is no longer marketed; or (5) is otherwise possibly contaminated, deteriorated, or adulterated.
Proposed §  203.39(b)(6) would require recipient charitable institutions to dispose of any drug sample found to be unsuitable by destroying it or by returning it to the manufacturer and to maintain complete records of the disposition of all drug samples destroyed or returned.
Proposed §  203.39(b)(7) would require that, if a donated drug sample is collected by an authorized agent or employee of the recipient charitable institution or is personally delivered by a licensed practitioner or an authorized agent of a donating charitable institution, the employee or agent of the recipient institution is to prepare at the time of collection or delivery a complete and accurate donation record for the samples. Both the donor and recipient would be required to sign the donation record when it is created, and the donor and recipient would each retain a copy.
If a donated drug sample is transferred by mail or common carrier, the licensed practitioner or donating  [*11855]  charitable institution would be required to prepare a donation record that would be signed by the licensed practitioner or authorized agent of the donating charitable institution (§  203.39(b)(8) and (b)(9)). The donation record would be shipped with the drug sample. An authorized agent or employee of the recipient charitable institution would be required to countersign it, keep a copy, and return a copy to the licensed practitioner or donating charitable institution.
Proposed §  203.39(b)(9) would require the donation record to include: (1) The name, address, and telephone number of the licensed practitioner (or donating charitable institution), and the practitioner's professional title and State license number or DEA identification number; (2) the manufacturer, brand name, quantity, and lot or control number of the sample; (3) the date of the donation; (4) the signature of the licensed practitioner (or the signature of the authorized agent of the donating charitable institution); and (5) the signature of the authorized agent or employee of the recipient charitable institution.
The proposal would require charitable institutions to maintain complete and accurate records of donation, receipt, inspection, inventory, dispensing, redistribution, destruction, and returns sufficient for complete accountability and auditing of drug sample stocks (§  203.39(b)(10)).
It would also require each recipient charitable institution to conduct an inventory of drug sample stocks, at least annually, utilizing independent inventory personnel, and to prepare a report reconciling the results of each inventory with the most immediate prior inventory. Inventory discrepancies and reconciliation problems would be required to be investigated by the charitable institution and reported to FDA (§  203.39(b)(11)).
Proposed §  203.39(b)(12) would require that a recipient charitable institution provide written certification to the licensed practitioner or donating charitable institution that it is in conformity with all the requirements of proposed part 203 before receiving any drug sample donation. Such certification, which links the licensed practitioner with the charitable institution, could be made part of the donation record.
Proposed §  203.39(b)(13) would require a recipient charitable institution to store drug samples under conditions that will maintain the samples' stability, integrity, and effectiveness, and ensure that the drug samples will be free of contamination, deterioration, and adulteration.
Proposed §  203.39(c) would also specify that a charitable institution may donate drug samples to another recipient charitable institution for dispensing to patients, provided that the recipient charitable institution meets the appropriate requirements.
In addition to the procedure for drug sample donations delineated in proposed §  203.39, there are alternative means available for charities to receive donated prescription drug products from manufacturers and distributors. These include: (1) Direct donations of prescription drug stock by manufacturers or distributors, with records of distribution and receipt being maintained in accordance with State regulations; and (2) deliveries of drug samples to charity hospital and health care entity pharmacies by manufacturers and distributors or their representatives under the request of a licensed practitioner in accordance with the requirements set forth in proposed § §  203.30 and 203.31.
 
15. Free Distributions That Are Not Samples
There are certain situations in which manufacturers and distributors may deliver prescription drugs at no charge without such free distributions being samples. Accordingly, such distributions are not subject to the recordkeeping requirements for samples. Nevertheless, FDA believes that States and manufacturers and distributors should establish recordkeeping requirements and systems, where appropriate, to prevent diversion.
a. Distribution of drugs to indigent patients. As noted above, a drug sample is defined at proposed §  203.3(i) as a unit of a prescription drug that: (1) Is not intended to be sold; and (2) is intended to promote the sale of the drug. Drugs that are given free of charge to patients in some circumstances may not necessarily be samples. For example, manufacturers of some expensive new drugs have decided that, under certain circumstances, they will arrange for licensed practitioners to prescribe and dispense these drugs at no charge or at reduced cost to indigent patients. In FDA's view, if the objective of this practice is to ensure that patients in need of prescription drugs will have access to them, whatever their financial circumstances, then it is not a promotional scheme, and such drugs are not samples under section 503(c)(1) of the act or proposed §  203.3(i).
b. Starter packs. Starter packs are also not drug samples. Starter packs are prescription drug products distributed without charge by manufacturers or distributors to pharmacists with the intent that the pharmacists place the prescription drugs in stock and sell them at retail. Starter packs may be distributed by manufacturers' or wholesale distributors' representatives (detailers), by mail or common carrier, or by direct delivery from a manufacturer or distributor. Starter packs of solid oral dosage forms can be offered in ordinary stock packages, in special packaging comprised of unit-of-use or course-of-treatment sizes, or in special packaging smaller than standard stock packages whose sizes have no relationship to treatment regimens.
Starter packs are intended to "prime the pump" by making a product available at no cost to the pharmacist so the pharmacist will fill prescriptions with the manufacturer's product. They permit the patient and pharmacist to become familiar with the manufacturer's product. Starter packs are a widely used selling tool and thus are intended to promote the sale of the drug. Representatives often will make a sales presentation before delivering them or at the same time they are delivered.
PDMA's definition of drug sample sets up a two-element test that determines whether a particular item of prescription drug is a drug sample. The two-element test requires that the drug: (1) Is not intended to be sold; and (2) is intended to promote the sale of the drug. Starter packs meet the second element of the drug sample test because they are intended to promote the sale of a particular drug. However, even though starter packs are delivered without charge to pharmacists, they do not conform to the first element of the statutory drug sample definition because the manufacturer or distributor intends that they be sold by the pharmacist. Accordingly, starter packs are not samples.
Because starter packs are not samples, they are not subject to the sample restrictions in PDMA. Instead, they are subject to regulation as prescription drugs under the act in like manner as stock shipments of prescription drugs. Because starter packs are not drug samples, the request, receipt, and recordkeeping requirements in PDMA for samples do not apply, and pharmacists are free to sell these products at retail.
Because starter packs provide opportunities for diversion similar to those presented by drug samples, manufacturers, and distributors should establish and maintain accounting, audit, and security systems for starter packs to guard against diversion.  [*11856]
c. Pharmacy colleges. For many years, manufacturers have given pharmacy schools and colleges pharmaceutical products for teaching purposes. These products are given to help the schools train pharmacy students in drug formulation, compounding, packaging, and labeling, and to familiarize students with dosage forms. These products are not intended to be distributed or dispensed, nor are they intended to promote the sale of the drug. Accordingly, the agency does not view prescription drugs donated to colleges of pharmacy for educational purposes as drug samples.
d. Donations of drugs to charitable institutions. There is nothing in PDMA or in the legislative history of PDMA that would suggest that PDMA is intended to discourage direct donations by manufacturers or distributors of stock packages of prescription drug products to charitable institutions. Because these donations provide patients with the prescription drugs they need without regard to cost and are not intended to promote the sale of the drug, the distributions are not sample distributions within the meaning of section 503(c)(1) of the act or proposed §  203.3(i).
 
16. "Bid" and "Commercial" Samples
Manufacturers of drug products sometimes take delivery of bulk drug ingredients or precursor specimens for testing and evaluation purposes. These specimens are scrutinized for compatibility with a manufacturer's production equipment and to determine if they are suitable for use in formulating the drug products the manufacturer wishes to produce. Sometimes,