Secure The Pharmaceutical Supply Chain From Risky Counterfeiters

By Grace-Marie Turner

The Food and Drug Administration is investigating a rising number of cases involving counterfeit prescription drugs — cases that threaten the health of individual patients and the safety of the nation’s drug supply. The FDA’s Office of Criminal Investigation opened 72 new cases in 2010, up from just six a decade earlier.

Federal officials document that American consumers have purchased counterfeit Adderall, Vicodin, Viagra, Xanax, flu medications, and even cancer drugs. State legislators are working to tackle the problem with laws and regulations to secure prescription drugs from the manufacturer to your medicine cabinet.

But our system of interstate commerce makes this increasingly problematic. The contradictory patchwork of state rules actually allows criminals to enter markets with the lowest safety requirements to inject counterfeit, unsafe, and potentially lethal products into the national supply chain.

Normally, our federalist system of government would work this out, with states experimenting with laws to see which systems work best. But this is one place where clear, federal compliance standards are needed to avoid the costs and complexity of complying with a maze of contradictory laws, some requiring state-specific technologies.

Leading members of the House and Senate have released a draft proposal for bipartisan legislation to establish a federal “track and trace” program. The proposal would eliminate regulatory compliance headaches for the industry and increase the security of the drug supply chain by establishing nationwide standards. The technology exists to effectively operate a federal electronic traceability system, but the FDA lacks the authority to implement the federal standards.

Key industry participants have come together — including pharmaceutical and biologics manufacturers, wholesalers, distributors, chain drug stores, community pharmacies, and others — to support the proposal. The group says that the current patchwork of conflicting state laws and regulations not only adds huge costs of compliance but actually exposes our drug supply to greater risk.

For example, California soon will require all medications to have a serial number and be accompanied by electronic records detailing every instance the product changed hands. Only about half of the states have similar track-and-trace laws, and their implementation and enforcement rules vary widely.

To meet compliance in California alone, pharmaceutical companies will face exorbitant expenses. Retooling a single packaging line can cost up to $1 million — bringing the industry’s compliance costs in California to as much as $3.5 billion.

And this is only one state. Some states require electronic tracking, others use paper. Some start with the primary distributor, others the secondary wholesaler. This burden is not a good way to reduce the costs of prescription drugs or to free up money to invest in research for the next generation of medicines.

Small businesses will be hardest hit. By some estimates, California compliance costs could swallow two-thirds of the net annual profit of pharmacies. The Pharmaceutical Distribution Security Alliance reports that after expenses, the new regulations will wipe out more than 100 percent of income for smaller distributors.

Such losses could force companies to restrict operations, limit distribution to products exempt from strict requirements, or close their doors entirely.

This could, in turn, lead to more supply disruptions and drug shortages.

Patients, physicians, and the pharmaceutical alliance all have a vested interest in making sure that patients are getting the products they are prescribed. The patchwork of laws and regulations can allow bad actors to introduce fake drugs into the legitimate supply chain, placing patients at risk.

The legislation that Congress is developing would create a unified national system of security for the United States. Compliance with a federally-established standard would also be costly. But it would alleviate uncertainty and ambiguity. And by freeing the industry to meet a single set of requirements rather than the regulatory developments of 50 individual states, the industry and its customers would save money in the long run.

It’s a big deal for all of the supply-chain stakeholders to come to agreement about the value of a uniform system. But manufacturers, wholesalers, distributors, pharmacists and others in the pharmaceutical industry have rallied behind the congressional legislation.

The state-by-state system is both onerous and ineffective, and the risk it poses to public health from counterfeiters can no longer be ignored. Congress must establish a federal track and trace system to protect consumers from illicit, counterfeit, and possibly deadly drugs.

Posted on Forbes: Health Matters, May 20, 2013.

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