HDMA Testimony on FDA's Proposed NDC Rule

Requirements for Foreign and Domestic Establishment Registration and Listing for Human Drugs, Including Drugs That Are Regulated Under a Biologics License Application and Animal Drugs; Proposed Rule (NDC Proposed Rule)

Docket No. 2005N-0403 (71 FR 51275)
December 11, 2006

Scott Melville
Senior Vice President, Government Affairs
Healthcare Distribution Management Association (HDMA)

Good morning, I am Scott Melville, Senior Vice President, Government Affairs, for the Healthcare Distribution Management Association (HDMA).  I commend the FDA for holding this important public meeting, and I thank you for the opportunity to comment on behalf of HDMA and our members.
HDMA represents the nation’s primary, full-service healthcare distributors. Our 40 members include national, regional and family-owned businesses.  Each day, HDMA member companies deliver nine million healthcare products to more than 144,000 pharmacies, hospitals, nursing homes and clinics across the United States.

HDMA supports FDA’s effort to clarify the regulations on drug establishment registration and listing, and much of the proposed rule. However, two critical parts of the proposed rule will have an enormous and very negative impact on the pharmaceutical supply chain; 1) the definition of relabeling and 2) the assignment of NDCs on repackaged drugs. 

1.  Definition of Relabeling

The FDA’s proposed definition of relabel in section 207.1 is defined very broadly to mean any change or addition to the label or labels on a drug or drug package.  HDMA has grave concerns regarding the breadth of this definition. HDMA distributors ship millions of prescription drug products each day to customers nationwide. To do so efficiently, it is common practice for distributors to affix stickers, barcodes, tags or other identifiers to drug packages to track inventory location, identify product origins and/or to ensure proper returns from pharmacies.

For example:

1. Stickers may convey important handling information for customers (such as “refrigerate on arrival”) or direct the delivery of the drugs to a particular part of a hospital or medical facility. 
2. Some distributors manage inventory by applying proprietary serialized codes to drug packages that enter their facilities. These additions allow a company to identify and trace the drugs entering and leaving the distribution center. 
3. Some distributors apply bar codes to drug products in order to efficiently and effectively comply with FDA’s bar code rule, requirements under the PDMA final rule and/or state drug pedigree laws. To improve compliance with the state of Florida’s pedigree law, for example, some HDMA members add serialized bar codes to the drug product container.
4. Currently, some distributors are participating in Radiofrequency Identification (RFID) pilots to study the use of RFID tags in the prescription drug supply chain on appropriate products.  As RFID programs develop further, distributors will need the flexibility to sticker or tag products without also triggering the listing and registration requirements of this rule. 

These examples of distributor-applied stickers and tags do not otherwise alter the drug’s original label, labeling, package or outer container; do not affect the safety, purity or potency of the drug; and do not disturb its existing packaging configuration in any way. 

Thus, if the definition of relabel remains as proposed, many common security and inventory tracking best practices conducted today by distributors would unintentionally trigger the relabeling designation and the requirements of the rule.  If left unchanged, the FDA would have to assign tens of thousands of new NDC numbers to ensure compliance. 

Given that the agency stated in the rule’s preamble that most drugs would be able to retain their current NDC numbers, we believe FDA did not intend these consequences.  In our written comments we will propose an alternative definition of “relabel” that both accomplishes FDA’s goals and permits continuation of common distributor stickering, tagging and bar coding practices. 

2.  Repackaging

Repackaging is a second important practice that will be significantly affected by the proposed rule. 

HDMA members perform many forms of packaging. For example, a packaging company may  simplify the last step in the manufacturing process for the supplier (contract packaging) or aid in dispensing the product to the patient for hospitals using a unit-dose system (unit-dose packaging). However, today, I will limit my comments to the proposed rule’s effects on another type of packaging known as retail service repackaging.   

A retail service repackaging company purchases drug products from the manufacturer and repackages them into smaller quantities. The smaller packages are sold and delivered to retail pharmacy customers bearing the manufacturer’s applicable NDC for that package size. Retail service repackaging safely and effectively offers package sizes that increase inventory efficiencies, eliminate waste and provide enormous value to our members’ retail pharmacy customers.

HDMA members who conduct retail service repackaging do so in a safe, secure environment. All repackaging companies must register with the FDA as a manufacturer and operate in strict adherence with current Good Manufacturing Practices (cGMPs). In addition, repackaging companies must be licensed as distributors under applicable state laws. Further, our retail service repackaging members include their name, address and the repackaged lot number on each and every repackaged drug product, enabling the product to be tracked back to the repackager and, ultimately, to the original manufacturer. 

Above and beyond these regulatory requirements, HDMA has established Recommended Guidelines for Pharmaceutical Distribution System Integrity and Recommended Guidelines for Pharmaceutical Repackaging Integrity. HDMA’s repackaging members also voluntarily, and independently, follow even more aggressive security policies, including those that require purchasing drug products directly from manufacturers.

The proposed rule would disrupt this safe, efficient and cost-effective business service by requiring a new repackager NDC number on the product.  Under CMS requirements, responsibility for payment of the Medicaid rebate follows the NDC number on the drug package – if the manufacturer’s NDC number appears on the package, it is responsible for the rebate payment; if the repackager’s NDC number appears on the package, the repackager is responsible for the rebate2. By requiring that retail repackaged drugs bear the repackager’s NDC number, the rule effectively shifts the burden for Medicaid rebate payments from the manufacturer of the product to the repackager.

To better understand the business implications of this shift, HDMA retained The Moran Company, an independent consultant firm. The analysis concluded that repackaging companies will not be able to absorb the rebate cost given the industry’s slim margins. If the proposed rule becomes final and repacked drugs must bear the repackager’s NDC number, the consultant confirmed that distributors will no longer be able to offer this valuable service to pharmacy customers, and will exit the retail service repackaging industry. 

 Considering the economic impact and the safety and security controls already in place, requiring a new repackager NDC number is not warranted, nor will it provide additional levels of security. 

However, if FDA is convinced that an additional identifier is needed, we believe the alternatives that HDMA and NACDS have previously described to FDA are still valid, and will satisfy the rule’s intent, while allowing the repackaging industry to continue to serve its pharmacy customers.  Given the significant impact of the proposed rule we ask that the agency reconsider those alternatives.  

Under option one, repackaging companies would apply their unique Repack Item Code (RIC) to repackaged products. The code would be in human-readable format, and would be easily distinguishable from the NDC. Under option two, the repackaging company would apply the unique RIC and an FDA-assigned facility number, to further identify the repackager and the product. This, too, would be done in human-readable format for easy differentiation from the NDC.

Either alternative proposed by HDMA and NACDS would formalize the application of the unique repack item code and would meet the FDA’s objective of further identifying the repackager and repackaged product, without requiring a new NDC. 

We hope FDA will seriously consider the implications and alternatives presented by HDMA and NACDS and permit a path forward that enables our pharmacy customers to continue to benefit from repackaged products. If, however, FDA proceeds with implementation of the rule as proposed, HDMA asks on behalf of its members that the agency allow sufficient time to orderly restructure their retail service repackaging operations.  For prescription drugs, FDA had proposed a three- or five-year implementation period.  HDMA members estimate the pharmaceutical supply chain will need five years to adapt to the new rule.  Repackaging companies will need to renegotiate their contracts with both customers and suppliers, change and phase out the retail service repackaging operations and terminate or reassign their workforce.  Our members’ pharmacy and hospital customers will need this amount of time to evaluate their supply options and locate alternative sources for the product they currently obtain from retail service repackagers.  Some manufacturers also rely on repackaging to meet pharmacy needs, and will require time to alter their operations and possibly increase packaging capacity to produce additional smaller packaging units for distribution. 

To conclude, HDMA appreciates the opportunity to share our views with the FDA. While we commend the agency for proposing a rule intended to improve the “quality and timeliness of information available to patients and healthcare professionals,” we believe the proposed definition of relabel would undermine those stated goals by adding a more complex numbering and relabeling process onto the current distribution system. We ask that the agency carefully examine the proposed definition of relabel and narrow it to permit bar coding, tagging and other stickering practices distributors use to ensure the safe and secure delivery of products to pharmacies and other healthcare providers. 

Second, we ask that the agency reconsider its proposal to require that repackagers use their own NDC number, and instead allow the continued use of the manufacturers’ NDC. If the agency chooses not to amend the proposal as we recommend, we urge full consideration of the implications to the entire pharmaceutical supply chain by allowing the five-year lead time needed for manufacturers, repackagers and the retail industry to make alternative arrangements.  

Thank you very much for the opportunity to discuss this important topic.
 

1 “Relabel means to change the label or labels on a drug or drug package, or add to the labeling for a drug or drug package, without repacking the drug or drug package” (Preamble, page 51348).

2 From the Rebate Agreement Between the Secretary of Health and Human Services and the Manufacturer Identified in Section XI of this Agreement, Section I (l), “’Manufacturer’ will have the meaning set forth in Section 1927 (k)(5) of the Act except, for purposes of this agreement, it shall also mean the entity holding legal title to or possession of the NDC number for the Covered Outpatient Drug.”