The Drug Supply Chain Security Act (DSCSA), established as Title II of the Drug Quality and Security Act (DQSA) in 2013, functions as a crucial regulatory framework to protect the integrity of the pharmaceutical supply chain in the United States. Its overarching objective is to prevent the diversion and counterfeiting of drug products.

The DSCSA mandates national standards for wholesale distributors and third-party logistics providers (3PLs), superseding the previously existing patchwork of state-level regulations. Under the DSCSA, states are required to adhere to federal requirements, creating a unified approach to securing the supply chain.

The staggered march toward DSCSA compliance

Implementation of the DSCSA has taken a decade-long, staggered approach, with the FDA delaying enforcement of some requirements in response to the industry's need for more time to comply with the strict standards. Most recently, for example, the FDA postponed enforcement of electronic track and trace requirements for supply chain entities.

The DSCSA mandates an electronic tracing system for drugs at the package level, ensuring the verification of their legitimacy throughout the distribution process. This requirement is pivotal in safeguarding both consumers and the supply chain from counterfeit and diverted products. It enables this through track and trace capabilities, allowing for a clear understanding of a drug's location at any given point within the supply chain. The stringent track and trace requirements necessitate robust and often costly electronic systems.

The FDA postponed enforcement of the electronic track and trace requirements to allow businesses time to ramp up their technological capabilities as necessary. While the DSCSA requirements that trading partners provide, receive, and maintain documentation about products and ownership electronically only became effective on November 27, 2023, the FDA is allowing an additional year, until November 27, 2024, for trading partners to implement, troubleshoot, and mature their electronic interoperable systems.

Establishing a nationwide framework for licensing standards

The establishment of a national framework of licensing standards remains a pivotal aspect in securing the pharmaceutical supply chain. The current array of inconsistent licensing standards across the states poses significant challenges to wholesale distributors and third-party logistics (3PL) that are subject to a gamut of differing state regulations, including license renewal periods, record-keeping requirements, and varying degrees of background checks.

To address this, the FDA has proposed federal rules for licensing of 3PLs and wholesale distributors. Upon implementation of these rules, states will be required to update their laws to match the federal requirements, or they can opt to have the FDA handle the licensing process. While the proposed rules were published in 2022, the exact timeline for the establishment of a national licensure standard remains uncertain as the industry awaits the FDA's final rule. When the rules are finalized, there will be a staggered approach to implementation, with the rules becoming effective one or two years after the effective date of the final regulation.

Under the proposed federal rules, wholesalers will need to obtain licenses from their home state or the FDA if the state opts out of the licensing process, and states may require nonresident wholesale distributors obtain a license in their state before conducting business there. 3PLs must also secure licenses under the proposed rules. The proposed rules require every 3PL facility that distributes product be licensed either by the state from which the 3PL conducts activities, or if that state hasn’t established licensure, by the FDA. If the 3PL is engaged in interstate distribution, states may require 3PLs to obtain a license from the state that the product is being distributed into, if that 3PL isn’t licensed by the FDA. If the 3PL is licensed by the FDA, the 3PL would not be required to obtain a license from the state into which product is being distributed.

The FDA and states that maintain licensing authority will be authorized to use “approved organizations” (AO’s) who have been licensed by the FDA or the state to conduct inspections on their behalf. These inspections will include both a physical inspection and an electronic inspection of records. The AO’s will only be responsible for the inspection portion of the application process; determination of licensure will remain with the respective licensing authority. The role of AO’s in inspections signifies an expansion of the FDA's reach through partnerships to manage the increased volume of entities requiring oversight.

National licensure for wholesale distributors and 3PLs is anticipated to streamline the currently fragmented state regulations, promoting uniform standards across the United States. The regulatory landscape anticipates standardization of renewal cadences, aiming to bring uniformity to the previously varied state renewal timelines. However, the transition to the federal rules is expected to create some hurdles, as states with existing regulations, or those that lack regulations entirely, adapt to the new federal requirements. Further, this transition will likely not come without costs, and the road to compliance will involve financial implications and a need for robust operational infrastructure to meet the new standards.

While implementation of the DSCSA will create a harmonization of licensing and electronic tracing standards nationwide, it will not be without its challenges. Supply chain entities need to pay close attention to implementation dates and requirements, with a focus on making sure their infrastructure and business procedures can meet the strict federal standards. The industry is in a state of anticipation as final rules on 3PL and wholesale distributor licensing from the FDA are pending, however some states have already begun the process of updating their requirements to comply with what has been proposed. Supply chain entities would be wise to begin preparing for these changes as well, sooner rather than later.