Document ID: FDA-2020-N-1663-0001
Agency: fda
Document Type: Proposed Rule
Title: National Standards for the Licensure of Wholesale Drug Distributors and Third-Party Logistics Providers
Posted Date: 2022-02-04T05:00Z

[Federal Register Volume 87, Number 24 (Friday, February 4, 2022)]
[Proposed Rules]
[Pages 6708-6757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-01929]

[[Page 6707]]

Vol. 87

Friday,

No. 24

February 4, 2022

Part III

Department of Health and Human Services

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Food and Drug Administration

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21 CFR Parts 10, 12, 16, et al.

National Standards for the Licensure of Wholesale Drug Distributors and 
Third-Party Logistics Providers; Proposed Rule

  Federal Register / Vol. 87 , No. 24 / Friday, February 4, 2022 / 
Proposed Rules  

[[Page 6708]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 10, 12, 16, and 205

[Docket No. FDA-2020-N-1663]
RIN 0910-AH11

National Standards for the Licensure of Wholesale Drug 
Distributors and Third-Party Logistics Providers

AGENCY: Food and Drug Administration, Department of Health and Human 
Services (HHS).

ACTION: Proposed rule.

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SUMMARY: The Food and Drug Administration (FDA, the Agency, or we) is 
proposing national standards for the licensing of prescription drug 
wholesale distributors (``wholesale distributors'' or ``wholesale drug 
distributors'') and third-party logistics providers (``3PLs''), as 
directed under the Drug Supply Chain Security Act (DSCSA) (Title II of 
the Drug Quality and Security Act). Pursuant to the Federal Food, Drug, 
and Cosmetic Act (FD&C Act), as amended by the DSCSA, the proposed rule 
would establish standards for all State and Federal licenses issued.

DATES: Submit either electronic or written comments on the proposed 
rule by June 6, 2022. Submit comments on information collection issues 
under the Paperwork Reduction Act of 1995 by March 7, 2022.

ADDRESSES: You may submit comments as follows. Please note that late, 
untimely filed comments will not be considered. The https://www.regulations.gov electronic filing system will accept comments until 
11:59 p.m. Eastern Time on June 6, 2022. Electronic comments must be 
submitted on or before that date. Comments received by mail/hand 
delivery/courier (for written/paper submissions) will be considered 
timely if they are postmarked or the delivery service acceptance 
receipt is on or before that date.

Electronic Submissions

    Submit electronic comments in the following way:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments. Comments submitted 
electronically, including attachments, to https://www.regulations.gov 
will be posted to the docket unchanged. Because your comment will be 
made public, you are solely responsible for ensuring that your comment 
does not include any confidential information that you or a third party 
may not wish to be posted, such as medical information, your or anyone 
else's Social Security number, or confidential business information, 
such as a manufacturing process. Please note that if you include your 
name, contact information, or other information that identifies you in 
the body of your comments, that information will be posted on https://www.regulations.gov.
     If you want to submit a comment with confidential 
information that you do not wish to be made available to the public, 
submit the comment as a written/paper submission and in the manner 
detailed (see ``Written/Paper Submissions'' and ``Instructions'').

Written/Paper Submissions

    Submit written/paper submissions in the following ways:
     Mail/Hand Delivery/Courier (for written/paper 
submissions): Dockets Management Staff (HFA-305), Food and Drug 
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
     For written/paper comments submitted to the Dockets 
Management Staff, FDA will post your comment, as well as any 
attachments, except for information submitted, marked and identified, 
as confidential, if submitted as detailed in ``Instructions.''
    Instructions: All submissions received must include the Docket No. 
FDA-2020-N-1663 for ``National Standards for the Licensure of Wholesale 
Drug Distributors and Third-Party Logistics Providers.'' Received 
comments, those filed in a timely manner (see ADDRESSES), will be 
placed in the docket and, except for those submitted as ``Confidential 
Submissions,'' publicly viewable at https://www.regulations.gov or at 
the Dockets Management Staff between 9 a.m. and 4 p.m., Monday through 
Friday, 240-402-7500.
     Confidential Submissions--To submit a comment with 
confidential information that you do not wish to be made publicly 
available, submit your comments only as a written/paper submission. You 
should submit two copies total. One copy will include the information 
you claim to be confidential with a heading or cover note that states 
``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will 
review this copy, including the claimed confidential information, in 
its consideration of comments. The second copy, which will have the 
claimed confidential information redacted/blacked out, will be 
available for public viewing and posted on https://www.regulations.gov. 
Submit both copies to the Dockets Management Staff. If you do not wish 
your name and contact information to be made publicly available, you 
can provide this information on the cover sheet and not in the body of 
your comments and you must identify this information as 
``confidential.'' Any information marked as ``confidential'' will not 
be disclosed except in accordance with 21 CFR 10.20 and other 
applicable disclosure law. For more information about FDA's posting of 
comments to public dockets, see 80 FR 56469, September 18, 2015, or 
access the information at: https://www.govinfo.gov/content/pkg/FR-2015-09-18/pdf/2015-23389.pdf.
    Docket: For access to the docket to read background documents or 
the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in 
the heading of this document, into the ``Search'' box and follow the 
prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane, 
Rm. 1061, Rockville, MD 20852, 240-402-7500.
    Submit comments on information collection issues under the 
Paperwork Reduction Act of 1995 to the Office of Management and Budget 
(OMB) at https://www.reginfo.gov/public/do/PRAMain. Find this 
particular information collection by selecting ``Currently under 
Review--Open for Public Comments'' or by using the search function. The 
title of this proposed collection is ``National Standards for the 
Licensure of Wholesale Drug Distributors and Third-Party Logistics 
Providers.''

FOR FURTHER INFORMATION CONTACT: Aaron Weisbuch, Center for Drug 
Evaluation and Research, Food and Drug Administration, 10903 New 
Hampshire Ave., Bldg. 51, Rm. 4261, Silver Spring, MD 20993, 301-796-
3130. With regard to the information collection: Domini Bean, Office of 
Operations, Food and Drug Administration, Three White Flint North, 10A-
12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796-5733, 
[email protected].

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
    A. Purpose of the Proposed Rule
    B. Summary of the Major Provisions of the Proposed Rule
    C. Legal Authority
    D. Costs and Benefits
II. Table of Abbreviations/Commonly Used Acronyms in This Document
III. Background
    A. Introduction
    B. Need for the Regulation: The DSCSA and Establishment of 
National Standards for Licensure

[[Page 6709]]

    C. Changes From the Prescription Drug Marketing Act (PDMA)
IV. Legal Authority
V. Description of the Proposed Rule
    A. Scope/Applicability (Proposed Sec. Sec.  205.1 and 205.2)
    B. Definitions (Proposed Sec.  205.3)
    C. National Standards for Third-Party Logistics Providers
    D. Approved Organizations for Third-Party Logistics Providers
    E. National Standards for Wholesale Distributors
    F. Approved Organizations for Wholesale Distributors
VI. Proposed Effective/Compliance Dates
VII. Preliminary Economic Analysis of Impacts
VIII. Analysis of Environmental Impact
IX. Paperwork Reduction Act of 1995
X. Federalism
    A. Scope of Preemption
    B. Effective Date of Preemption
XI. Consultation and Coordination With Indian Tribal Governments
XII. References

I. Executive Summary

A. Purpose of the Proposed Rule

    The Drug Quality and Security Act (DQSA) was enacted on November 
27, 2013. Title II of the DQSA, the Drug Supply Chain Security Act 
(DSCSA), includes provisions designed to strengthen the integrity of 
the pharmaceutical distribution supply chain. Among other measures, 
section 204 of the DSCSA amends section 503(e) of the FD&C Act (21 
U.S.C. 353(e)), which requires licensure of prescription drug wholesale 
distributors (wholesale distributors or wholesale drug distributors or 
WDDs) and adds section 583 to the FD&C Act (21 U.S.C. 360eee-2), which 
requires FDA to establish by regulation national standards for the 
licensure of prescription drug wholesale distributors. Section 205 of 
the DSCSA adds section 584 to the FD&C Act (21 U.S.C. 360eee-3), which 
requires licensure of third-party logistics providers and requires FDA 
to establish, by regulation, national standards for the licensure of 
third-party logistics providers.
    This proposed regulation, when finalized, will establish the 
national standards for the licensure of wholesale drug distributors and 
3PLs required under sections 583 and 584 of the FD&C Act, as amended by 
the DSCSA. As required by statute, the standards, terms and conditions 
for licensure established by this regulation will apply to both Federal 
and State licenses (503(e)(1)(B), 583(b), and 584(a)(1)(A) of the FD&C 
Act).
    As discussed in section X (Federalism), section 585(b)(1) of the 
FD&C Act (21 U.S.C. 360eee-4(b)(1)) preempts States and localities from 
establishing or continuing requirements for 3PL or WDD licensure that 
are different from the national standards and requirements applicable 
under sections 584 and 503(e) of the FD&C Act. However, the statutory 
provisions themselves do not establish these ``standards and 
requirements''; instead, this regulation, once effective, will 
establish them. Accordingly, State and local licensure requirements 
will be preempted only once this regulation, when finalized, takes 
effect; until such time, current licensing of WDDs and 3PLs may 
continue. As discussed below, this determination will help avoid supply 
chain disruption, based on licensing uncertainties, during the period 
between DSCSA's enactment and the effective date of this regulation. 
Avoiding such interim period supply chain issues accords with 
Congress's overall intent to secure and strengthen the supply chain, as 
evidenced by other FD&C Act provisions added by DSCSA that recognize 
State licensure of WDDs and 3PLs prior to this regulation becoming 
effective.
    In addition, pursuant to section 585(c) of the FD&C Act (21 U.S.C. 
360eee-4(c)), regulation of areas within the historical police powers 
of the States would be unaffected by this regulation, including 
prohibiting employees of WDDs and 3PLs from engaging in criminal 
activity related to prescription drugs, provided that the State 
requirements involved are not related to licensure of 3PLs or WDDs.
    The requirements for state licensing of wholesale distributors are 
currently established under 21 CFR part 205, and FDA is now proposing 
the withdrawal of that regulation and for part 205 to be replaced with 
this proposed rule. Where a state from which a drug is being 
distributed has not established a licensing program in accordance with 
the regulation, the DSCSA establishes FDA as the licensing authority 
for wholesale distributor and 3PL licenses (sections 
503(e)(1)(A)(i)(II) and 584(a)(1)(B) of the FD&C Act). When finalized, 
the national standards set forth in the proposed rule will provide 
greater assurance that these supply chain participants are sufficiently 
vetted and qualified to distribute products, further strengthening the 
supply chain and the safety of prescription drugs provided to American 
consumers.
    When finalized, this proposed rule will also set forth the 
standards applicable to, and the requirements for approval of, third-
party organizations involved in the licensure and inspection process 
(``approved organizations'' or ``AOs''). Sections 583(c) and 
584(d)(2)(A) of the FD&C Act provide, respectively, that FDA may 
approve ``third-party accreditation'' or inspection services or 
programs to conduct inspections of facilities used by wholesale 
distributors seeking licensure and to review the qualifications of 3PLs 
for licensure. This proposed rule will also address the standards and 
requirements for approving such third-party accreditation or inspection 
services or programs.
    Overall, this proposed rule is designed to ensure that the supply 
chain remains secure and that those prescription drugs subject to the 
DSCSA that are moving through the supply chain are properly stored, 
handled, and transported. These measures are intended to help protect 
American consumers from drugs that may be counterfeit, stolen, 
contaminated, or otherwise harmful.
    For purposes of this proposed rule, FDA has defined ``entity'' or 
``entities'' to mean a business organization, such as a corporation, 
company, association, firm, partnership, society, or joint stock 
company. Unless otherwise noted, the term ``3PL'' or ``third-party 
logistics provider'' in this proposed rule includes both the 3PL entity 
and the individual 3PL facilities requiring a license.

B. Summary of the Major Provisions of the Proposed Rule

    FDA is proposing to replace the current part 205 with a new part 
205 that will implement the licensure requirements of the DSCSA and 
govern licensure of 3PLs and wholesale distributors. When finalized, 
the new part 205 will replace the existing part 205 in its entirety. 
Subpart A will set forth the national licensing standards for State and 
Federal licenses issued to 3PLs pursuant to section 584 of the FD&C 
Act, and subpart C will set forth the national licensing standards for 
State and Federal licenses issued to wholesale distributors pursuant to 
sections 503(e) (as amended) and 583 of the FD&C Act. Subparts B and D 
will set forth the applicable standards and processes for approved 
organizations to perform licensure reviews and conduct inspections.
1. National Standards for the Licensure of Third-Party Logistics 
Providers
    The DSCSA identifies 3PLs as separate members of the drug supply 
chain--distinct from wholesale drug distributors--and specifically 
precludes States from regulating 3PLs as wholesale distributors 
(585(b)(2) of the FD&C Act). FDA is required by section 584 of the FD&C 
Act to establish national standards for the licensure of 3PLs, and

[[Page 6710]]

the Agency is proposing those standards in subpart A of proposed part 
205. When finalized, each facility of an entity meeting the definition 
of a 3PL in section 581(22) of the FD&C Act (21 U.S.C. 360eee(22)) will 
be required to be licensed by a State or Federal licensing authority in 
accordance with the standards articulated in subpart A of proposed part 
205.
2. National Standards for the Licensure of Wholesale Drug Distributors
    Prior to DSCSA's enactment, wholesale distributors engaging in 
interstate commerce were required to be licensed by the State in which 
they were operating pursuant to section 503(e)(2) of the FD&C Act (as 
then in effect). This section established minimum standards, terms, and 
conditions for licensing of wholesale distributors pre-DSCSA. As 
required by sections 503(e)(1)(B) (as amended by the DSCSA) and 583 of 
the FD&C Act, FDA is proposing to establish national standards, terms, 
and conditions through this rulemaking for the licensure of wholesale 
distributors that, when final, will apply to all State licensing 
programs as well as to the new Federal licensing program to be operated 
by FDA. These new standards would replace the previous standards set 
forth in current part 205.
3. Approval of Third Parties To Conduct Licensure Reviews and 
Inspections
    In accordance with section 584(d)(2)(A) of the FD&C Act, FDA is 
proposing to establish a process by which third-party organizations 
will be approved by FDA to review a 3PL's qualifications for licensure. 
In addition, in accordance with section 583(c) of the FD&C Act, FDA is 
proposing to establish a process by which third-party organizations 
will be approved by FDA to conduct inspections of wholesale 
distributors for the purpose of licensure.
4. Conforming Changes
    The regulation also proposes to amend 21 CFR 10.50(c) and 
12.21(a)(2), which list statutory authorities that provide the 
opportunity for a formal evidentiary public hearing under 21 CFR part 
12. Because the regulation proposes that wholesale distributors and 
3PLs could request a formal evidentiary public hearing under part 12 
for review of decisions affecting the denial, suspension, or revocation 
of 3PL or wholesale distributor licenses issued by the Secretary of 
Health and Human Services (Secretary), sections 503(e), 583, and 584 of 
the FD&C Act would be added to the list of statutory sections under 
which there is the opportunity for a hearing under Sec. Sec.  10.50(c) 
and 12.21(a)(2), regarding such decisions. We are also proposing a 
conforming change to 21 CFR 16.1(b) to describe procedures for 
regulatory hearings that would add actions related to approved 
organizations under proposed Sec. Sec.  205.19 and 205.33 respectively, 
including revocation or suspension of approval, to the list of actions 
for which a regulatory hearing under 21 CFR part 16 may be held.

C. Legal Authority

    We are issuing this proposed rule under sections 301, 501, 502, 
503(e), 582, 583, 584, 585, 701(a), and 704 of the FD&C Act (21 U.S.C. 
331, 351, 352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a), 
and 374).

D. Costs and Benefits

    In this rulemaking, we propose new national standards for the 
licensing of prescription drug wholesale distributors and third-party 
logistics providers as directed under the Drug Supply Chain Security 
Act, Title II of the Drug Quality and Security Act. If finalized, the 
rule would also establish a Federal licensing system for wholesale drug 
distributors and third-party logistics providers to use in the absence 
of a state licensure program that is consistent with the proposed 
national standards.
    The standards for prescription drug wholesale distribution in the 
proposed rule would result in benefits to consumers and benefits to 
distributors from reducing the diversion of prescription drugs. Other 
monetized benefits include cost savings from reducing the frequency and 
quantity of licensure applications and cost savings from reducing state 
licensing standards in some states. We estimate that the annualized 
benefits over 10 years would range from $1.25 million to $31.50 million 
at a 7 percent discount rate, with a primary estimate of $10.66 
million. We estimate that the annualized benefits would range from 
$1.26 million to $32.18 million at a 3 percent discount rate, with a 
primary estimate of $10.89 million.
    We also expect that the proposed rule, if finalized, would impose 
costs on wholesale drug distributors, third-party logistics providers, 
states, approved organizations, and the Food and Drug Administration 
(FDA). Costs to wholesale drug distributors and third-party logistics 
providers include costs of learning about the rule, reporting to FDA, 
undergoing routine inspections, writing and revising standard operating 
procedures, and conducting background checks. Wholesale-drug 
distributors would also incur costs to furnish surety bonds to their 
state licensing authority to obtain or renew their licenses.
    Costs to states include the time spent reading and understanding 
the rule, passing or revising the laws and regulations governing their 
licensure programs, and inspecting WDD and 3PL facilities. Approved 
organizations would incur legal, application, and training costs, as 
well as costs to inspect WDD and 3PL facilities. FDA costs include the 
costs to establish and operate a reporting database and a licensure 
program for wholesale drug distributors and third-party logistics 
providers and the costs to establish and operate an approval program 
for approved organizations.
    We estimate that the annualized costs over 10 years would range 
from $13.21 million to $20.63 million at a 7 percent discount rate, 
with a primary estimate of $16.92 million. We estimate that the 
annualized costs over 10 years at a 3 percent discount rate would range 
from $12.83 million to $20.10 million, with a primary estimate of 
$16.47 million.

II. Table of Abbreviations/Commonly Used Acronyms in This Document

------------------------------------------------------------------------
       Abbreviation/ acronym                    What it means
------------------------------------------------------------------------
3PL................................  Third-Party Logistics Provider.
AO.................................  Approved Organization.
CFR................................  Code of Federal Regulations.
DSCSA..............................  Drug Supply Chain Security Act.
DQSA...............................  Drug Quality and Security Act.
FDA or the Agency..................  U.S. Food and Drug Administration.
FD&C Act...........................  Federal Food, Drug, and Cosmetic
                                      Act.
------------------------------------------------------------------------

III. Background

A. Introduction

    The DSCSA (Title II of Pub. L. 113-54) was signed into law on 
November 27, 2013, to better protect the U.S. drug supply chain. FDA's 
implementation of the DSCSA includes many activities, including this 
proposed rule. Once final, this rule will establish national standards 
for licensure of wholesale distributors and 3PLs, as required by the 
DSCSA. For information on additional FDA activities related to the 
DSCSA, a web page describing FDA's implementation activities can be 
found at: https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/default.htm.

B. Need for the Regulation: The DSCSA and Establishment of National 
Standards for Licensure

    The U.S. drug supply chain remains one of the safest in the world. 
However, the increasingly globalized nature of the supply chain brings 
with it complexities

[[Page 6711]]

that increase threats to the safety and security of the U.S. drug 
supply. A breach at any point in the supply chain carries potential for 
dangerous, and even deadly, outcomes for American consumers.
    In passing the DSCSA, Congress recognized the need for national 
standards for the storage, handling, and transport of prescription 
drugs and directed FDA, in sections 583(a) and 584(d) of the FD&C Act, 
to establish such standards by regulation for WDDs and 3PLs, 
respectively. These national standards will help diminish opportunities 
for dangerous and criminal conduct affecting the supply of prescription 
drugs in the United States. When final, every U.S. wholesale 
distributor and 3PL facility will be held to these standards through 
the statute's licensure requirements. Where a State does not have a 
licensing program in accordance with the regulation, FDA will be the 
licensing authority.
    This proposed rule, when finalized, will provide much needed 
certainty and clarity for wholesale distributors and 3PLs seeking 
licensure. In passing the DSCSA, Congress believed the existing system 
of different regulation regarding supply chain security by each state 
created a patchwork system of governance and that a uniform national 
standard would address this concern. See statements of Senator Mikulski 
(Ref 1), Congressmen Mathis (Ref 2) and Congressman Latta (Ref 3).
    Requirements for wholesale distributors currently vary 
significantly across State lines, and many wholesale distributors and 
3PLs have facilities in multiple States. Specifically, State 
requirements and standards for licensure can vary on topics such as the 
length of time for which records must be maintained; qualifications of 
facility managers and designated representatives; facility 
requirements; licensure duration; renewal procedures; exemptions from 
the definition of wholesale distribution; and inspection and approval 
requirements by certain, specific organizations in order to receive 
licensure in certain States. This proposed rule, when finalized will be 
an important first step in harmonizing these requirements, thus 
allowing for greater compliance and management of licensure.
    Additionally, we note that commenters on FDA's draft guidance 
entitled ``The Effect of Section 585 of the FD&C Act on Drug Product 
Tracing and Wholesale Drug Distributor and Third-Party Logistics 
Provider Licensing Standards and Requirements: Questions and Answers'' 
(Ref 4) agreed that creation of a uniform national standard for 
licensure, through the issuance of these regulations, should be the 
goal of FDA (see, e.g., Ref 5). Commenters noted that the patchwork of 
licensing standards was precisely the regulatory burden that the DSCSA 
was intended to eliminate. (see, e.g., Ref 6) Comments added that 
tracking and complying with different standards in different States on 
a continuing basis would be very time consuming and add unnecessary 
costs to the distribution chain (see, e.g., Ref 7).
    We believe that the issuance of these regulations, when finalized, 
will provide far greater clarity to both States and regulated industry 
as to the requirements and expectations FDA has with respect to 
licensure. The publication of these regulations, when finalized, and 
the approach to preemption discussed in this document will reflect the 
national standard Congress intended, but will detail FDA's expectations 
with respect to licensure. This will allow for greater certainty in the 
logistics and distribution industry, and in the supply chain as a 
whole.
    Since the passage of DSCSA, States have implemented disparate 
policies with respect to licensure of 3PLs. Some States repealed or 
eliminated 3PL as a licensure category, others are waiting for FDA to 
publish its regulations before determining how to proceed, some are 
licensing 3PLs under some other form of licensure, and some do not 
regulate 3PLs at all (Ref 8). These regulations, when finalized, will 
provide certainty and clarity in the logistics industry.
    The Agency believes finalizing these proposed regulations is 
crucial to implementation of licensure of 3PLs as intended by DSCSA. 
Under section 582(a)(7) of the FD&C Act (21 U.S.C. 360eee-1(a)(7)), 
3PLs are deemed licensed until the effective date of these regulations 
unless the Secretary has made a finding that the 3PL does not utilize 
good handling and distribution practices and publishes notice thereof. 
Until these regulations are issued, and the framework for licensure 
established, the Agency cannot institute the provisions and the goals 
of DSCSA--to further secure the supply chain by including 3PLs as an 
authorized member of the supply chain through the licensure provisions, 
which will ensure that they are appropriately credentialed, inspected, 
and therefore duly qualified to participate in the supply chain.
    Theft and diversion of prescription drugs continue to be major 
issues, contributing to drug shortages and creating significant 
financial losses, the effects of which cascade throughout the supply 
chain to consumers. FDA has observed that these instances often involve 
products distributed by unlicensed wholesale distributors. FDA 
standards, oversight, and regulations, including to implement the 
requirements of DSCSA, will lessen and hopefully eliminate product 
diversion in the legitimate supply chain. According to the National 
Association of Boards of Pharmacy (NABP)'s 2013 report entitled 
``Wholesale Drug Distribution: Protecting the Integrity of the Nation's 
Prescription Drug Supply,'' drug diverters and bad actors seek out gaps 
in the distribution and regulatory structure, specifically seeking out 
States whose licensure framework is less stringent (Ref. 9). This 
proposed rule, when finalized, and the preemption of inconsistent State 
provisions will remedy this forum shopping for drug diverters who seek 
to take advantage of the lack of uniform framework.
    Additionally, NABP's 2013 report also contends that the so-called 
``five percent rule'' is a policy that has been ripe for exploitation 
due to the policy being inconsistently legislated, interpreted, and 
enforced from State to State. This was a policy under which FDA had 
previously concluded that sales of prescription drugs by a retail 
pharmacy to licensed practitioners for office use would be considered 
to be minimal and not constitute wholesale distribution, if the total 
dollar volume of these sales does not exceed 5 percent of the total 
dollar volume of that retail pharmacy's annual prescription sales (see 
further discussion in ``Definitions'' section below). However, this 
interpretation was not codified. The NABP observed that ``pharmacies 
acting as wholesalers have been found to take advantage of the 
parameters set by some States [regarding minimal quantities] when it 
comes to drug distribution. Rather than dispensing the drugs as 
mandated, these pharmacies retain them to resell to wholesalers at an 
amount exceeding the specified quantity of prescription medications as 
permitted in certain States (often times 5% of annual sales). Some have 
gone as far as to sell their entire inventory into the gray market'' 
This proposed rule, when finalized, codifies the principle that the 
five percent rule only applies to pharmacy sales for office use. Sales 
above five percent for office use, or any sales to a wholesale 
distributor, require the pharmacy to become licensed and regulated as a 
wholesale distributor. This proposed rule will clarify this requirement 
and close a potential loophole that could lead to diversion of products 
and excessive sales from dispensers who are not licensed and registered 
as wholesale distributors

[[Page 6712]]

when they are engaging in wholesale distribution.
    Unlicensed wholesale distribution has been a major source of 
diverted products both leaving and reentering the supply chain. 
Significant amounts of drug diversion involve wholesale distributors, 
either diverting the product themselves from the supply chain, or 
purchasing product that was diverted by another actor. The DSCSA, which 
requires uniform national standards for licensure of wholesale 
distributors, will cut down on these types of instances of diversion 
since supply chain trading partners are required to transact with only 
other trading partners who meet the strict requirements laid out in 
these regulations. There are many examples of diversion and criminal 
action by wholesale distributors under the current regulatory scheme, 
which these regulations, when finalized, will discourage, or possibly 
even prevent, in the future.
    As an example, from 2007-2014, individuals involved with the 
Minnesota Independent Cooperative bought prescription drugs from a 
network of illegal and unlicensed sources and sold approximately $393 
million worth of diverted prescription drugs to wholesalers and retail 
pharmacies throughout the United States. These individuals falsified 
transactional documents, as well as licensure documents, to enter into 
fraudulent transactions with dispensers and other wholesalers. In a 
2008 example detailed in the indictment, the unlicensed individuals 
involved allegedly bought a truckload of stolen asthma inhalers for 
$662,000 and sold them through the Minnesota Independent Collective to 
another wholesaler for about $1 million (Ref 10). These regulations, 
when finalized, and the DSCSA requirements that trading partners only 
transact with authorized, licensed trading partners, and verify suspect 
and illegitimate product, will make these schemes far more difficult to 
achieve. Had DSCSA been the prevailing regulatory scheme at the time, 
other wholesale distributors and dispensers would have been deterred 
from doing business with the Minnesota Independent Collective because 
they were not an authorized trading partner.
    In 2014, two individuals pleaded guilty to their involvement in a 
drug diversion and distribution scheme through an entity called 
Cumberland Distribution. Both defendants admitted that Cumberland 
Distribution purchased prescription drugs from individuals and entities 
that were not licensed to engage in the wholesale distribution of 
prescription drugs and were not authorized to distribute prescription 
drugs. Cumberland Distribution then distributed these products to 
dispensers. The prescription drugs were acquired through various 
networks of ``diverters'' who obtained prescription drugs from other 
unlawful sources. As a result, Cumberland Distribution could not 
lawfully resell the drugs. Pharmacies throughout the United States 
purchased these diverted prescription drugs from Cumberland 
Distribution under the guise that the products had been in the custody 
of licensed wholesale distributors or other authorized distributors 
since being sold by the original manufacturer (Ref 11). Under DSCSA, 
the licensure status of these purported wholesale distributors is 
easily searchable and verifiable, thus making diversion schemes, such 
as this, far more difficult to achieve. In addition to requiring FDA to 
establish national licensure standards, the DSCSA outlines critical 
steps for building an electronic, interoperable system to identify and 
trace certain prescription drugs as they are distributed in the United 
States (section 582(g) of the FD&C Act). This system will enhance FDA's 
ability to protect American consumers from exposure to drugs that may 
be unfit for distribution and will increase efficiency in the detection 
and removal of potentially dangerous drugs from the U.S. drug supply 
chain.
    The FD&C Act, as amended by DSCSA, requires FDA to establish 
national standards for the licensure of two critical members of the 
supply chain: wholesale drug distributors and 3PLs. It also requires 
that only those wholesale distributors and 3PL facilities licensed 
according to these national standards may engage in wholesale 
distribution or 3PL activities, respectively. Only licensed wholesale 
drug distributors and 3PLs whose facilities are so licensed will be 
considered ``authorized trading partners'' permitted under the FD&C 
Act, as amended by DSCSA, to engage in transactions related to the sale 
and distribution of certain prescription drugs with other members of 
the supply chain.
    To create the standards proposed in the regulations, FDA conducted 
a comprehensive review of existing State standards for licensure 
including storing, handling, and holding prescription drugs, as well as 
other nationally recognized standards and model rules for wholesale 
distribution and logistics, such as those created by the NABP (Ref 12), 
Healthcare Distribution Alliance (Ref 13), World Health Organization 
(Ref 14), and the Pharmaceutical Inspection Convention and 
Pharmaceutical Inspection Co-operation Scheme (jointly referred to as 
PIC/S) (Ref 15). The Agency believes that the proposed standards align 
with existing practices and will help ensure that 3PL and wholesale 
distribution activities are undertaken in a manner that minimizes 
diversion and threats to the regulated supply chain.

C. Changes From the Prescription Drug Marketing Act (PDMA)

    Prior to the DSCSA's enactment, the last comprehensive legislative 
action related to prescription drug distribution was the Prescription 
Drug Marketing Act of 1987 (PDMA) (Pub. L. 100-293). Among other 
things, the PDMA required wholesale distributors to obtain licenses 
from States in which they were operating (sec. 6 of the PDMA; also see 
FDA's 2001 Report to Congress on the PDMA (Ref 16)). Under the PDMA, 
FDA promulgated regulations that established minimum standards, terms, 
and conditions for licensure of wholesale distributors. The PDMA 
provided neither a specific definition of 3PL-type entities nor 
specific oversight over them; without a distinct regulatory framework 
for 3PLs, some States chose to regulate and license 3PLs as wholesale 
distributors, with some others choosing to license 3PLs as separate 
entities. The DSCSA requires that all wholesale distributor and 3PL 
licenses meet the standards established by FDA (sections 503(e)(1)(B) 
and 584(a) of the FD&C Act), and that 3PLs not be licensed as wholesale 
distributors (section 585(b)(2) of the FD&C Act).
    If an entity owns a facility in which it is engaging in 3PL 
activities and wholesale distribution out of the same facility, the 
entity will be required to hold a 3PL license and a separate wholesale 
distributor license for the distinct functions they perform.

IV. Legal Authority

    The Agency is proposing this rule under the authority to propose 
national standards for the licensing of wholesale distributors and 3PLs 
granted to it by various sections of the FD&C Act, including sections 
301, 503(e), 582, 583, 584, 585, 701(a), and 704 (21 U.S.C. 331, 351, 
352, 353(e), 360eee-1, 360eee-2, 360eee-3, 360eee-4, 371(a), and 374).
    Section 503(e) requires wholesale distributors to be licensed 
according to the standards, terms, and conditions established by the 
Secretary, and section 583 requires FDA to establish by regulation 
national standards for the licensure of prescription drug wholesale 
distributors. Section 584 requires 3PLs to be licensed according to 
standards established in regulations promulgated

[[Page 6713]]

by FDA for the licensure of 3PLs. Section 301(t) prohibits the failure 
to comply with the requirements under sections 584 and 503(e). Section 
301 also prohibits a number of actions concerning adulterated and 
misbranded drugs. Section 585 provides that states cannot implement 
licensing standards, requirements, or regulations that are inconsistent 
with, less stringent than, directly related to, or covered by the 
standards applicable under sections 503(e) and 584. Section 585 also 
precludes states from regulating 3PLs as wholesale distributors. To 
enforce these and other provisions of the FD&C Act, section 704 
authorizes FDA to conduct inspections. Section 701(a) of the FD&C Act 
provides general authority to issue regulations for the efficient 
enforcement of the FD&C Act. By establishing national standards for the 
licensing of wholesale distributors and 3PLs, this rule, when 
finalized, is expected to aid in the efficient administration and 
enforcement of the FD&C Act, and in particular would help efficiently 
enforce the provisions relating to licensure of wholesale drug 
distributors and 3PLs.

V. Description of the Proposed Rule

    The national standards for the licensure of 3PLs, required by 
section 584 of the FD&C Act, as amended by DSCSA, are set forth in 
subpart A of proposed part 205. The national standards for the 
licensure of wholesale distributors, required by sections 503(e) and 
583 of the FD&C Act, as amended by DSCSA, are set forth in subpart C of 
proposed part 205. The process and standards for third-party 
accreditation programs to become approved by the Federal Government to 
evaluate the qualifications of 3PLs for licensure, as required by 
section 584(d) of the FD&C Act, are established in subpart B of 
proposed part 205. The process and standards for third-party 
accreditation and inspection services to become approved by the Federal 
Government to conduct inspections of wholesale distributors, as 
permitted by section 583(c) of the FD&C Act, are set forth in subpart D 
of proposed part 205.

A. Scope/Applicability (Proposed Sec. Sec.  205.1 and 205.2)

    In accordance with section 584 of the FD&C Act, FDA is proposing to 
establish the national standards for licensing by State and Federal 
licensing authorities set forth in subpart A of part 205 that would 
apply to 3PL facilities in any State (see proposed Sec.  205.1). 
Furthermore, in accordance with section 503(e)(1) of the FD&C Act, FDA 
is proposing to establish the national standards for wholesale 
distributors set forth in subpart C of part 205 that would apply to 
wholesale distributors of prescription drugs in any State (see proposed 
Sec.  205.1). The standards, terms, and conditions for licensure 
established under part 205, subparts A and C, once finalized, would 
apply to all State and Federal 3PL and wholesale distributor licenses.
    All 3PL facilities are required to obtain a 3PL license for each 
facility of such 3PL. The FD&C Act, as amended by DSCSA, prohibits 
States from regulating 3PLs as wholesale distributors. A 3PL that also 
engages in wholesale distribution in the same facility in which it 
engages in 3PL activities must obtain a separate wholesale distribution 
license (see proposed Sec.  205.1).
    An entity is considered a wholesale distributor if the entity is 
engaged in the distribution of a drug subject to section 503(b) 
(relating to prescription drugs) of the FD&C Act (21 U.S.C. 353(b)), to 
a person other than a consumer or patient, with a few exclusions. Under 
section 201(g) of the FD&C Act (21 U.S.C. 321(g)), a drug includes a 
bulk drug substance, and under current FDA regulations, the term bulk 
drug substance means any substance that is represented for use in a 
drug and that, when used in the manufacturing, processing, or packaging 
of a drug, becomes an active ingredient or a finished dosage form of 
the drug. The term does not include intermediates used in the synthesis 
of such substances (21 CFR 203.3(e)). FDA believes that the 
distribution of bulk drug substances must have the same safeguards and 
provisions as the distribution of finished drug products. The same 
safeguards that prevent diversion and theft and secure the 
pharmaceutical distribution supply chain generally must include the 
transfer of bulk drug substances, as they are subject to the same 
concerns as the distribution of prescription drugs in finished dosage 
form.
    FDA is proposing to establish the process and standards that would 
apply to any third-party accreditation or inspection services seeking 
to obtain or maintain approval by FDA to evaluate qualifications of 
3PLs for licensure or to conduct inspections of wholesale distributors 
(see proposed Sec.  205.1). Once finalized, proposed subparts B and D 
of part 205 would establish the process and standards for third-party 
accreditation and inspection services to become approved by the 
Secretary to review the qualifications of 3PLs for licensure, as 
required by section 584(d) of the FD&C Act, and to conduct inspections 
of wholesale distributors, as permitted by section 583(c) of the FD&C 
Act (see proposed Sec.  205.2) (i.e., to become ``approved 
organizations'').

B. Definitions (Proposed Sec.  205.3)

    By its terms, the definitions of terms in section 581 of the FD&C 
Act (21 U.S.C. 360eee) applies in subchapter H. However, because those 
terms are also used throughout section 503(e) of the FD&C Act (as 
amended by the DSCSA), FDA considers the definitions and 
interpretations contained in section 581 of the FD&C Act to apply to 
those terms when used in proposed part 205. Specifically, the 
definitions of the following terms contained in section 581 of the FD&C 
Act apply when used in proposed part 205: Affiliate, authorized, 
dispenser, illegitimate product, licensed, manufacturer, product, 
repackager, return, specific patient need, suspect product, third-party 
logistics provider, and wholesale distributor. In addition, FDA is 
proposing the definition of the following additional terms to help 
clarify the requirements. FDA believes that these proposed definitions 
align with existing law and regulations, as well as current industry 
practices.
     3PL Activities: Includes warehousing and ``other logistics 
services'' that are undertaken with respect to a product (as defined in 
proposed Sec.  205.3(k)).
     Change of Entity Ownership: Recognizing that businesses 
often undergo changes in corporate structure through mergers, 
acquisitions, and other transactions, FDA proposes that ``change of 
entity ownership'' be defined to help ensure consistency with regard to 
how such changes will affect licensure. The definition describes the 
events that would constitute a change in ownership with respect to a 
partnership, unincorporated sole proprietorship, corporation, or 
limited liability company.
     Co-Licensed Partner: One of two or more entities that have 
entered into an agreement for the right to engage in the marketing of a 
prescription drug. The Agency believes this definition is in alignment 
with industry practice and existing laws.
     Designated Representative: An individual who is designated 
as the representative of the facility manager and, as such, is 
identified by the licensee as responsible for managing the daily 
operation of the establishment in compliance with licensure 
requirements and has the authority to implement corrective action when 
necessary. This individual is also responsible for ensuring that 
personnel are appropriately qualified, assigned, and

[[Page 6714]]

trained to accomplish their duties. The Agency believes this definition 
reflects current practices and understanding.
     Entity or Entities: A business organization, such as a 
corporation, company, association, firm, partnership, society, sole 
proprietorship, or joint stock company.
     Facility: A site at one general, permanent, physical 
location used to store or handle prescription drugs. For purposes of 
proposed part 205, a facility does not include a site, such as a 
corporate office or headquarters, where the sole activity conducted at 
the site is one of oversight, support, or business administrative 
function.
     Key Personnel: Any individual who has responsibility for 
managing the operations of the wholesale distributor, including any 
principal, owner, director, officer of the wholesale distributor, 
designated representatives, and other individuals who are authorized to 
enter areas where prescription drugs are held and are likely to handle 
those prescription drugs as a part their responsibilities within the 
operation.
    [cir] Section 583(b)(5) of the FD&C Act, as amended by DSCSA, 
requires that FDA establish standards for the ``establishment and 
implementation of qualifications for key personnel'' of wholesale 
distributors. These key personnel must be sufficiently qualified and 
screened to carry out the important responsibilities that come with 
positions within a wholesale distribution company. FDA believes 
individuals who hold these positions must be held to a high standard of 
qualification as they are entrusted with important aspects of 
protecting the pharmaceutical distribution supply chain.
     Minimal Quantities: An annual dollar volume of 
prescription drugs sold by a retail pharmacy to licensed practitioners 
for office use that does not exceed 5 percent of the total dollar 
volume of that retail pharmacy's annual prescription sales.
    [cir] Section 503(e)(4) of the FD&C Act excludes a number of 
activities from the definition of wholesale distribution. One excluded 
category, listed at section 503(e)(4)(E) of the FD&C Act, is ``the 
distribution of minimal quantities of a drug by a licensed retail 
pharmacy to a licensed practitioner for office use.'' FDA has 
previously considered what constitutes minimal quantities in 
determining when the practices of a retail pharmacy become wholesale 
drug distribution and thereby subject to licensure (see 64 FR 67720, 
December 3, 1999). For example, in preamble discussions around 
codifying provisions related to wholesale distribution, FDA proposed a 
minimal quantities limit, considered comments, and ultimately concluded 
that sales of prescription drugs by a retail pharmacy to licensed 
practitioners for office use would be considered to be minimal and not 
wholesale distribution, if the total dollar volume of these sales does 
not exceed 5 percent of the total dollar volume of that retail 
pharmacy's annual prescription sales.
    [cir] The Agency continues to maintain its position that a 5-
percent limit to what constitutes minimal quantities is sufficient ``to 
meet the needs of licensed practitioners who may not purchase enough 
prescription drugs to go through a wholesale distributor and thus may 
not otherwise be able to easily obtain drugs for office use'' (64 FR 
67720 at 67748). We believe this standard is still relevant and is the 
industry standard. We note that in January 2013, the NABP passed a 
resolution that supports limiting the five percent rule to allow for 
transfer ``between pharmacies, or from pharmacy to or from pharmacies 
to practitioners, only for the purpose of dispensing or administration, 
but not for resale; and to prohibit the transfer, distribution, or sale 
of prescription drugs from pharmacies to wholesalers for resale'' (Ref 
17). The transfer or sale from dispenser to dispenser for a specific 
patient need is already considered to not be wholesale distribution 
under the FD&C Act (see section 503(e)(4)). This NABP resolution 
accords with FDA's proposed definition of minimal quantities. We 
request comment on the codification of this 5 percent limit for office 
use and of the definition of minimal quantities.
    [cir] Accordingly, a licensed retail pharmacy that distributes more 
than 5 percent of its annual sales to licensed practitioners is 
engaging in wholesale distribution, subject to all the requirements for 
wholesale distributors, unless its activities are otherwise excluded 
from the definition of wholesale distribution. The exemption for 
distributing minimal quantities of drugs by retail pharmacies to 
licensed practitioners for office use was ``not created to confer a 
special benefit on retail pharmacies, but to meet the legitimate need 
of licensed practitioners'' (64 FR 67720 at 67748). For purposes of 
section 503(e)(4)(E) of the FD&C Act, FDA is proposing to codify its 
position on ``minimal quantities'' in the proposed Sec.  205.3(h) to 
mean the ``total annual dollar amount sold to licensed practitioners 
for office use does not exceed 5 percent of the total dollar volume of 
that retail pharmacy's annual prescription drug sales.''
    [cir] The Agency also notes that this exclusion only applies to 
sales of prescription drugs from licensed pharmacies to licensed 
practitioners for office use. FDA understands that some States and 
other entities have expanded the applicability of this exclusion from 
the definition of wholesale distribution to allow for distribution from 
pharmacies to other entities outside of licensed practitioners for 
office use, but FDA notes that this practice is not allowed under 
current Federal law. The statutory language at section 503(e)(4)(E) of 
the FD&C Act specifically limits the exclusion to the distribution of 
minimal quantities of a drug between a licensed retail pharmacy and a 
licensed practitioner for office use. Unless a specific sale or 
transfer of a drug from one dispenser to another dispenser is outside 
of the definition of wholesale distribution because it is to a consumer 
or patient (e.g., to fulfill a ``specific patient need,'' as defined at 
section 581(19) of the FD&C Act), a pharmacy that sells or trades 
prescription drugs to other pharmacies or other entities falls within 
the definition of wholesale distribution. Such activity is considered 
wholesale distribution under section 503(e)(4) of the FD&C Act, subject 
to all the requirements of wholesale distributors.
     Other Logistics Services: Services provided by entities 
that accept or transfer direct possession of products from that 
entity's facility within the United States and its territories on 
behalf of a trading partner (e.g., manufacturer, wholesale distributor, 
dispenser), but that do not take ownership of the product or have the 
responsibility to direct a product's sale or disposition. It also 
includes services undertaken with respect to a product for a repackager 
that is acting on behalf of a manufacturer, wholesale distributor, or 
dispenser.
    [cir] Under the DSCSA, the definition of 3PL includes entities that 
conduct ``other logistics services'' on behalf of a manufacturer, 
wholesale distributor, or dispenser of a product. The Agency recognizes 
that 3PLs may perform 3PL activities for repackagers and proposes to 
include in the definition of ``other logistics services'' those 
services undertaken with respect to a product for a repackager acting 
on behalf of a manufacturer, wholesale distributor, or dispenser.
    [cir] Under this proposed definition, a common carrier that only 
transports a product, but does not take ownership of the product, is 
not conducting ``other logistic services.'' Similarly, an entity

[[Page 6715]]

that directs the sale or disposition of the product but does not take 
possession (such as a broker) would not be conducting ``other logistics 
services'' and does not meet the definition of a 3PL, but may be 
engaged in activities that meet the definition of a manufacturer or 
wholesale distributor.
     Other Than a Consumer or Patient: A person receiving the 
drug who is not (i) the individual identified as the recipient of the 
prescription drug, (ii) a dispenser fulfilling a specific patient need, 
or (iii) the clinical investigator, as defined in 21 CFR 312.3(b) (or 
any successor regulation).
    [cir] FDA considers certain types of prescription drug distribution 
as outside the scope of ``wholesale distribution'' under section 
503(e)(4) of the FD&C Act because they constitute ``the distribution of 
a drug'' to a ``consumer or patient,'' which is excluded from the 
definition of wholesale distribution. The first of these is the 
distribution to, or receipt by, the patient, who, for purposes of 
DSCSA, FDA considers to be the individual intended to take or be 
administered the prescription drug. This would typically be the 
individual whose name appears on the prescription.
    [cir] FDA also considers the transfer or sale of a drug from one 
dispenser to another to fulfill a ``specific patient need'' to be 
outside the scope of wholesale distribution. Specific patient need is 
defined at section 581(19) of the FD&C Act as ``the transfer of a 
product from one pharmacy to another to fill a prescription for an 
identified patient.'' FDA would note, however, that a dispenser who 
transfers or sells a drug to a trading partner other than another 
dispenser, or to another dispenser where there is no specific patient 
need evidenced by a prescription, is distributing a drug to someone 
other than a consumer or patient, which, if not otherwise excluded 
under section 503(e)(4) of the FD&C Act, would be engaging in wholesale 
drug distribution requiring a wholesale distributor license.
    [cir] Finally, FDA considers the sale or transfer of a drug for 
investigational or research purposes to an investigator, as defined in 
21 CFR 312.3 (or any successor regulation), under an investigational 
new drug application (IND) submitted to FDA to be outside the scope of 
wholesale distribution because the drug is used for in vitro, clinical, 
or other research purposes under an IND.
    [cir] For these reasons, FDA is proposing to exclude these types of 
transactions from the scope of wholesale distribution.
     Product: A prescription drug in a finished dosage form 
that is ready for administration to a patient without substantial 
further manufacturing (e.g., capsules, tablets, lyophilized products 
before reconstitution).
    [cir] The definition of ``product'' proposed here is broader and 
more inclusive than that used for purposes of product tracing detailed 
in section 582 of the FD&C Act as defined in section 581(13). As used 
in section 584 of the FD&C Act for purposes of licensure of a 3PL, the 
term ``product'' excludes active pharmaceutical ingredients intended 
for incorporation into a finished drug product but have yet to undergo 
substantial further manufacturing to become the finished dosage form 
for administration. Of note, for purposes of section 582 of the FD&C 
Act (21 U.S.C. 360eee-1), the definition for ``product'' excludes 
certain types of prescription drugs in finished dosage form (section 
581(13) of the FD&C Act).
     Significant Disciplinary Action: Any action by a State or 
Federal licensing authority that would limit or prevent a 3PL from 
conducting 3PL activities, or would limit or prevent a wholesale 
distributor from distributing or facilitating the distribution of 
prescription drugs. This includes suspension or revocation of a 3PL or 
wholesale distributor license, State controlled substances license, or 
Drug Enforcement Administration (DEA) registration, and potentially 
includes other disciplinary actions such as a consent decree or final 
ruling of a State licensure board, depending on the impact on the 3PL's 
or wholesale distributor's legal ability to perform licensed 
activities.
     Unfit for Distribution: A prescription drug that has been 
identified as a drug whose sale would violate the FD&C Act. This 
definition includes prescription drugs identified as suspect or 
illegitimate (582(c)(4) of the FD&C Act); adulterated, including drugs 
rendered nonsaleable because conditions (such as return, recall, 
damage, or expiry) cast doubt on the drug's safety, identity, strength, 
quality, or purity (section 501 of the FD&C Act); or misbranded 
(section 502 of the FD&C Act (21 U.S.C. 352)).
    [cir] FDA believes that prescription drugs unfit for distribution 
must be segregated from those that are fit for distribution to protect 
patients from receiving potentially defective or harmful prescription 
drugs and prevent the distribution of drugs that are unfit for 
distribution.
    [cir] A wholesale distributor or 3PL could potentially identify a 
prescription drug as unfit for distribution through their own 
examination of incoming and outgoing shipments of prescription drugs as 
outlined by proposed 21 CFR 205.12(c)(1) for 3PLs and 205.26(c)(4) for 
wholesale distributors, through inventory review under proposed 21 CFR 
205.12(c)(4)(i) for 3PLs and 205.26(c)(5)(i)(B) for wholesale 
distributors, through other internal means designed to detect product 
that is unfit for distribution, or be notified of a prescription drug's 
status as unfit for distribution by a trading partner or others.
     Wholesale distribution:
    [cir] Section 503(e)(4) of the FD&C Act defines wholesale 
distribution as ``the distribution of a drug subject to [section 503(b) 
of the FD&C Act] to a person other than a consumer or patient, or 
receipt of a drug subject to [section 503(b) of the FD&C Act] by a 
person other than the consumer or patient.'' The definition then goes 
on to list 19 activities that are not considered wholesale 
distribution. Of these, FDA is providing clarification about several 
that may be causing some confusion for industry and the States.
    [cir] Section 503(e)(4)(C) of the FD&C Act states that the 
distribution of a drug or an offer to distribute a drug for emergency 
medical reasons, including a public health emergency declaration 
pursuant to section 319 of the Public Health Service Act, does not 
constitute wholesale distribution. In addition to distribution of a 
drug during a declared public health emergency pursuant to section 319 
of the Public Health Service Act, FDA considers the following 
circumstances to constitute emergency medical reasons and therefore be 
excluded from the definition of wholesale distribution: (1) The 
distribution of a drug to a first responder or other authorized 
individual administering prescription drugs to acutely ill or injured 
persons in an emergency situation and outside a healthcare facility, 
and (2) a long-term care facility receiving an emergency kit containing 
drugs for use in emergency situations to treat acutely ill or injured 
persons during hours of the day when necessary drugs cannot be obtained 
from a dispenser. Pursuant to 503(e)(4)(C) of the FD&C Act, this 
exclusion from the definition of wholesale distribution does not 
include distributing a drug during a shortage unless such shortage was 
caused by a public health emergency.
    [cir] The exclusion at section 503(e)(4)(E) of the FD&C Act for the 
distribution of minimal quantities of prescription drugs by a licensed 
retail pharmacy to a licensed practitioner for

[[Page 6716]]

office use is discussed in the description of the term ``minimal 
quantities.''
    [cir] Section 503(e)(4)(H) of the FD&C Act excludes ``the 
distribution of a drug by the manufacturer of such drug'' from 
wholesale distribution. Therefore, FDA considers the activities of a 
manufacturer, as defined at section 581(10) of the FD&C Act, when 
distributing its own drug, as excluded from the definition of wholesale 
distribution and not subject to the requirements that apply to 
wholesale distributors. FDA believes this is supported by the term 
``wholesale distributor,'' which is defined at section 581(29) of the 
FD&C Act, in relevant part, as ``a person (other than a manufacturer, a 
manufacturer's co-licensed partner . . .) engaged in wholesale 
distribution.'' The Agency notes, however, that if Manufacturer A 
purchases and distributes Manufacturer B's drug, for which Manufacturer 
A has no affiliation and is not a co-licensed partner, Manufacturer A 
is engaged in wholesale distribution, subject to all the requirements 
for wholesale distributors.

C. National Standards for Third-Party Logistics Providers

1. 3PL Licensure
    3PL facilities are required to be licensed in order to conduct 
activities in any State (section 584 of the FD&C Act). As such, the 
proposed regulation provides that a 3PL facility may not conduct 3PL 
activities unless it is licensed by the State from which it conducts 
3PL activities, or by FDA if the State from which 3PL activities are 
conducted has not established a licensure program in accordance with 
the regulations, as set forth in section 584(a) of the FD&C Act (see 
proposed Sec.  205.4(a)). In addition, the requirement in 584(a) of the 
FD&C Act that each facility of the 3PL must be licensed, such that a 
3PL with multiple facilities in a single State will have multiple 
licenses from that State, is set forth in proposed Sec.  205.4(b).
    Under FDA's proposed regulation, if a 3PL owns or leases a facility 
serving as a warehouse for products, the State in which the facility is 
located will be considered the State from which the 3PL ``conducts 
activities'' and will be the State from which the 3PL must obtain a 
license for that facility under proposed Sec.  205.4(a)(1). FDA 
understands there has been some confusion about whether an entity hired 
or contracted by another trading partner to provide labor, logistic, or 
administrative services for that trading partner in that trading 
partner's facility would be considered a 3PL. This could occur, for 
example, where a wholesale distributor hires a contractor to provide 
such support services from within the wholesale distributor's facility 
exclusively for that wholesale distributor. In this scenario, the 
contractor's activities from within the wholesale distributor's 
licensed facility would be captured by the wholesale distributor's 
license and obligations for compliance, and the facility would not be 
considered a 3PL or required to have a 3PL license. However, an entity 
that operates a facility in which it engages in wholesale distribution 
and performs 3PL activities on behalf of other trading partners for 
products it does not own or direct the sale or disposition of is 
required to obtain both a wholesale distributor and 3PL license for 
that facility.
    Additionally, pursuant to section 584(a)(2) of the FD&C Act, if a 
product is distributed in interstate commerce, the 3PL must be licensed 
by the State into which the product is distributed if that State 
requires such license; however, section 584(a)(2) of the FD&C Act also 
provides that if the 3PL is licensed by FDA, as described in section 
584(a)(1)(B), the 3PL is not required to obtain a license from the 
State into which the product is distributed (see proposed Sec.  
205.4(a)(3)). Finally, to ensure that a facility and those responsible 
for its operations meet the licensing standards, FDA proposes to 
require that 3PL licenses be facility- and owner-specific and not 
transferable to another establishment or owner (see proposed Sec.  
205.4(c)). 3PL licenses must be held at the licensed facility and must 
be made available to State, Federal, or other licensing authorities 
upon request (see proposed Sec.  205.4(d)).
    Section 584 states that the national licensing standards for 3PLs 
established by regulation take effect 1 year after the date such final 
regulation is published (section 584(d)(1) and (3) of the FD&C Act). 
National licensing standards for wholesale distributors established by 
regulation take effect 2 years after the date such final regulation is 
published (section 583(a) and (e)(3) of the FD&C Act). For several 
reasons, including those discussed below, FDA does not intend to 
enforce the licensing requirements for 3PLs until 2 years after the 
final regulation is published.
    FDA recognizes that 1 year may be insufficient time for States to 
implement 3PL licensure programs, should they decide to implement such 
a program, and for 3PLs to apply for licensure under these programs. 
Setting up a state licensure program may require additional time. This 
is especially true in States that will require State legislative action 
to implement a licensure program, with some State legislatures only 
meeting biennially.
    Considering these factors, FDA does not intend to enforce these 
requirements with respect to the national standards for licensure until 
2 years after the regulation is finalized. This will help ensure there 
is time for States to establish or modify their licensure programs in 
accordance with the new standards and time for 3PLs to apply and obtain 
a new license.
    For 1 year after the effective date of the final regulation, FDA 
also does not intend to enforce the requirements of section 582(b)(3), 
(c)(3), (d)(3), and (e)(3) of the FD&C Act with respect to a 
manufacturer, wholesale distributor, dispenser, or repackager who has 
as a trading partner a 3PL that is not licensed, unless the 3PL is not 
licensed because the Secretary or a state licensing body has made a 
finding that the 3PL does not utilize good handling and distribution 
practices and has published notice thereof.
2. General Application Requirements for Licensure
    The general requirements that must be met for a State or Federal 
licensing authority to issue a license to a 3PL facility are proposed 
in Sec.  205.5. As proposed, Sec.  205.5(a) includes requirements 
applicable to the individual who submits the application and states 
that the applicant must submit all required information and pay any 
applicable licensing fee to be issued a license.
    The information that would be required as part of a 3PL's 
application for licensure of a facility is set forth in proposed Sec.  
205.5(b). FDA believes this information is necessary for the licensing 
authority to assess whether the 3PL is in good standing and has the 
infrastructure and capabilities to fulfill its duties and obligations 
under these national standards for 3PL licensure. This includes 
disclosing whether the 3PL facility manager or designated 
representative has ever been convicted of a felony relating to 
prescription drug distribution (see proposed Sec.  205.5(b)(7)). FDA 
believes that this information is crucial to protect the integrity of 
the prescription drug supply chain by ensuring that those responsible 
for the daily operations of a 3PL facility do not have a history of 
violating the FD&C Act. In addition, in its application for licensure 
renewal, under proposed Sec.  205.7, a 3PL would be required to certify 
that the 3PL facility has continually met the requirements of Sec.  
205.5 and will inform the licensing authority of certain changes to

[[Page 6717]]

information if such changes have not already been submitted to the 
licensing authority (see proposed Sec.  205.5(c)).
3. The Federal Licensure Process
    Section 584(a)(1)(B) of the FD&C Act gives FDA the authority to 
license 3PLs directly if the State from which a 3PL conducts 3PL 
activities has not established a licensure requirement in accordance 
with the regulations. The process that FDA will use for issuing 
licenses to 3PLs is detailed in proposed Sec.  205.6. While Sec.  205.6 
is only applicable to 3PLs obtaining a license from FDA, FDA suggests 
that States implement similar procedures. FDA intends to help 
stakeholders understand who the appropriate licensing authority is in 
the 3PL's State.
    The FDA licensure process begins when a 3PL seeking licensure for a 
facility submits an application to FDA for review and consideration 
(see proposed Sec.  205.6(a)). The DSCSA permits FDA to approve third-
party organizations, referred to as approved organizations or AOs, to 
evaluate a 3PL's qualifications for licensure (section 584(d)(2)(A)-(B) 
and 584(e) of the FD&C Act). If FDA has approved one or more 
organizations to review a 3PL's qualifications for licensure, a 3PL 
should note the AO it prefers on its application. FDA generally intends 
to review a 3PL's qualifications for licensure only if the review 
cannot be completed by an FDA-approved AO. The licensure review 
consists of a review of all documents submitted in support of the 
application and an inspection of the facility pursuant to proposed 
Sec.  205.16. FDA intends for the licensure application process to be 
electronic (see proposed Sec.  205.6(a)) and to leverage existing 
technologies to streamline the licensure process.
    While the DSCSA permits AOs to review a 3PL's qualifications for 
licensure and to recommend to FDA whether a 3PL should be licensed, the 
responsibility for determining whether a 3PL meets all applicable 
requirements and to issue the license remains with FDA (see proposed 
Sec.  205.6(b)).
    So as not to delay the licensure process, when reviewing an 
application, FDA intends to work with 3PLs to correct minor errors made 
on the application and communicate with the 3PL about additional 
information the Agency may need (see proposed Sec.  205.6(c)). When FDA 
determines that a 3PL facility meets the applicable requirements and 
that none of the prohibited factors listed in proposed Sec.  
205.9(a)(1) are present, FDA will send the applicant an approval letter 
and a licensing certificate, effective on the date it is issued (see 
proposed Sec.  205.6(d)).
    FDA recognizes that a 3PL may have concerns about what happens to 
the status of its license if the AO that reviewed its qualifications 
for licensure has disciplinary sanctions taken against it that affect 
its approval status or if it is otherwise no longer considered an 
approved AO. While a 3PL facility should not be penalized for the 
actions of the AO that reviews its qualifications for licensure, FDA 
must ensure that the AO's review and findings provide a reliable basis 
for licensing decisions.
    As such, FDA is proposing that the approval status of the AO that 
performed the licensure review for a 3PL facility will not 
automatically affect the licensure of a licensed 3PL facility that is 
otherwise in good standing (see proposed Sec.  205.6(e)). Rather, in 
the event that an AO has disciplinary sanctions taken against it, ends 
its business, or is otherwise no longer considered an approved AO, the 
license of any 3PL facility reviewed by that AO will be subject to 
appropriate action in accordance with Sec.  205.9 and other applicable 
statutes or regulations. FDA may verify the 3PL's compliance status and 
review the facts in that situation to determine the potential effect, 
if any, on the licensure of 3PL facilities reviewed by that AO.
    FDA intends to publish additional guidance regarding the process 
and procedures related to obtaining and maintaining a 3PL license 
issued by FDA.
4. Changes to Information, Location, or Ownership of a Licensed 3PL
    For the licensing authority to effectively carry out its 
responsibilities, a 3PL must keep its license information current and 
report any changes in information, including those that may 
significantly affect operations such as changes in location or 
ownership, to the licensing authority. Presently, the reporting 
requirements for these types of changes vary by State. FDA is proposing 
in Sec.  205.7 that changes to certain information, including, for 
example, any changes in information submitted as part of an application 
for licensure, be submitted electronically to the licensing authority 
within 30 calendar days of the change (see proposed Sec.  205.7(a)). 
Additionally, because a license is facility- and-owner specific (see 
proposed Sec.  205.4(c)), the Agency is proposing that changes in the 
location or the ownership of a facility will require a new license (see 
proposed Sec.  205.7(b) and (c)).
5. Expiration and Renewal of Licenses
    The DSCSA requires that the regulations establishing national 
standards for 3PLs provide that a 3PL license expires 3 years after the 
date of issuance, with the option for renewal for additional 3-year 
periods (section 584(d)(2)(H) of the FD&C Act). FDA is proposing to 
implement this requirement under proposed Sec.  205.8 by saying that 
all 3PL licenses, whether newly issued or renewed by the licensing 
authority, expire 3 years from the date of issuance or renewal. FDA 
also proposes that 3PLs may not submit renewal applications more than 
90 days prior to the license's date of expiration to ensure that 
licenses are renewed based on current information. While we do not 
anticipate lengthy administrative delays by the licensing authority, if 
a 3PL files an application for a license renewal within the appropriate 
time period and there is an administrative delay reviewing the license 
application that causes the 3PL license to lapse, the 3PL will not be 
penalized for that administrative delay. In this scenario, the 3PL's 
license will be considered valid during the period of the 
administrative delay (see proposed Sec.  205.8).
    The Agency understands that at the time a final rule covering these 
proposed national standards goes into effect, there are likely to be 
3PLs with existing licenses under State law. Nevertheless, 3PLs with 
existing State licenses must obtain new licenses in accordance with 
section 584(a) of the FD&C Act. These national licensing standards 
serve an important function of ensuring consistency across the domestic 
market. However, as described above, FDA does not intend to enforce the 
requirements with respect to the national standards for licensure of 
3PLs until 2 years after the regulation is finalized. FDA's proposed 
requirements are further detailed in proposed Sec.  205.16, which 
discusses the required inspections prior to licensure.
6. Licensure Denial, Suspension, Reinstatement, and Revocation--Notice 
and Opportunity To Request a Hearing
    The standards for licensure denial are set forth in proposed Sec.  
205.9.
    Proposed Sec.  205.9(a)(1) enumerates 9 circumstances under which 
the licensing authority would be required to deny a 3PL's request for 
licensure or license renewal. FDA believes that this list will help 
3PLs focus on good storage practices outlined by FDA that are necessary 
to protect the integrity of the products in the pharmaceutical 
distribution supply chain. To avoid

[[Page 6718]]

denial or delays of their applications, 3PLs should ensure that they 
address the reasons for denial of a license outlined in proposed Sec.  
205.9(a)(1) when they file for licensure.
    Proposed Sec.  205.9(a)(2) details the process afforded to 3PLs 
whose applications for licensure have been denied. FDA is proposing to 
provide applicants with the opportunity to provide additional 
information for reconsideration of the denial. If the licensing 
authority denies a 3PL's request for licensure after reconsideration, 
the 3PL will receive a notice of opportunity to request a hearing under 
existing FDA hearing procedures. FDA requests comment regarding the 
reconsideration and appeal process outlined in this regulation for 3PLs 
whose applications for licensure have been denied.
    The proposed standards for suspending a 3PL license are set forth 
in Sec.  205.9(b) and (c) and are based on the severity of risk posed 
to the public health. Under most circumstances, we anticipate that a 
3PL would have the opportunity for a hearing before licensure 
suspension. However, under certain circumstances that involve repeated 
conduct detrimental to the public health or refusal to correct 
significant issues that could lead to the dissemination of illegitimate 
product, the Agency may suspend a license immediately while giving the 
3PL an opportunity to request a hearing. Under proposed Sec.  205.9(b), 
a 3PL's license may also be suspended after the 3PL receives a notice 
of opportunity to request a hearing. A suspended 3PL must cease all 3PL 
activities until their license is re-instated. This provision applies 
when the licensing authority has a reasonable belief that the 3PL is 
not in compliance with licensure requirements. FDA is proposing for 
Sec.  205.9(b) to require the licensing authority to notify the 3PL in 
writing of the intent to suspend its license. A 3PL will have 30 days 
from the date listed on the notice of intent to suspend a license to 
provide additional information to the licensing authority so it may 
reconsider its decision.
    If reconsideration is not sought or is denied, the licensing 
authority will inform the 3PL in writing of its formal intent to 
proceed with license suspension. The notice will contain a statement 
informing the 3PL that it can request a hearing on the question of 
whether there are sufficient grounds for suspension. The 3PL will have 
10 days from the date on the notice to inform the licensing authority 
of its intent to request a hearing; otherwise the opportunity for a 
hearing will be waived and the license suspended. FDA believes this 
process will afford 3PLs a sufficient opportunity to present 
information and attempt to remedy noncompliance issues which may 
threaten the safety of products in the supply chain. FDA requests 
comment regarding this reconsideration and appeal process.
    Proposed Sec.  205.9(c) allows for license suspension prior to 
opportunity for hearing and effective immediately if the 3PL's 
noncompliance poses an imminent threat to public safety. For example, 
if a 3PL is warehousing or shipping illegitimate product, and once made 
aware, corrective actions to protect the public health from the threat 
of these products are not taken, the 3PL's license could be suspended 
immediately. Another example could be a scenario where the conditions 
under which drugs are held or warehoused cause the product to be 
illegitimate and the 3PL refuses to correct the conditions or continues 
to ship these illegitimate products. Under the proposed regulation, in 
such a situation, the licensing authority will inform the 3PL in 
writing that its license is suspended. The notice will also contain a 
statement informing the 3PL that it may request a hearing and that a 
hearing, if granted, will be afforded within 10 days upon the receipt 
of the 3PL's request for hearing. The 3PL has 10 days from the date on 
the notice of suspension to request a hearing; otherwise its 
opportunity for a hearing will be waived. FDA believes that this limits 
the amount of time a 3PL license would be suspended while providing a 
reasonable amount of time both for the 3PL to review the notice of 
suspension and collect the necessary information to demonstrate that 
its license should not be suspended, and for FDA to consider a request 
for a hearing and to schedule and prepare for a hearing, if the hearing 
request is granted. FDA believes immediate suspension of a 3PL license 
is crucial in cases where continued operation of the 3PL presents an 
imminent threat to public safety and the pharmaceutical supply chain.
    Under proposed Sec.  205.9(d), a 3PL's suspended license may be 
reinstated if the 3PL can demonstrate to the licensing authority that 
it is in compliance with regulation requirements.
    Under the proposed rule, the process outlined at 21 CFR 10.75 is 
the default for appeals regarding a denied application for a 3PL 
license, and the hearing process outlined at 21 CFR part 16 is the 
default for appeals regarding a suspended or revoked 3PL license. 
However, the 3PL may request any of the procedures in 21 CFR parts 10 
through 16. FDA believes that this proposed approach is consistent with 
current practice and suggests that States develop comparable processes.
    The standards for revoking a 3PL license are set forth in proposed 
Sec.  205.9(e). The licensing authority will revoke a license if it 
finds that a 3PL whose license has been suspended is unable or refuses 
to comply with the licensing requirements. The requirements governing 
the revocation of a 3PL license are set forth in proposed Sec.  
205.9(e)(2) through (5) and mirror those outlined in Sec.  205.9(b)(2) 
through (7) for licensure suspension, with one exception: When the 
licensing authority informs the 3PL of its intent to revoke a license, 
the 3PL is given no opportunity for reconsideration since it already 
had an opportunity to rectify deficiencies while its license was 
suspended.
    In addition, where a 3PL fails to timely renew its application, the 
license will be considered expired and a 3PL will need to submit an 
application for new licensure because the licensing authority may be 
unable to confirm that the 3PL continues to meet all necessary 
licensure requirements (see proposed Sec.  205.9(f)).
    FDA is also proposing to terminate a 3PL's license upon request 
from the 3PL when the request includes a notice of the 3PL's intent to 
discontinue its activities and a waiver of an opportunity for a 
hearing. The 3PL will be required to apply for a new license should it 
decide to resume 3PL activities (see proposed Sec.  205.9(g)).
7. Good Storage Practices for 3PL Facilities
    The DSCSA charges FDA with creating national standards for the 
licensure of 3PL facilities, including the requirement that 3PLs comply 
with storage practices as determined by the Secretary (see section 
584(d)(2)(C) of the FD&C Act). Those requirements are detailed in 
proposed Sec.  205.10. FDA considers the requirement that ``each 
facility of such [3PL]'' be licensed ``in accordance with the 
regulations'' (section 584(a) of the FD&C Act) to mean that 3PLs 
without a facility are not required to be licensed. Section 584 of the 
FD&C Act provides that FDA will establish licensure standards that 
include requirements relating to storage of product. These standards 
address issues regarding access and maintenance that presuppose the 
existence of a physical facility where product is maintained. As such, 
the requirements apply to each 3PL facility that is owned, rented, or 
leased by the 3PL. If the 3PL shares the same name and location as 
another trading partner

[[Page 6719]]

(for example, a wholesale distributor), each entity must be separately 
licensed and must have separate systems and processes in place for 
their separate functions (see proposed Sec.  205.10(b)).
    The requirements for 3PL facilities regarding how products will be 
stored and adequate security maintained are set forth in proposed Sec.  
205.10(c). This provision includes requirements for storage of 
nonsaleable products within the 3PL facility. If the facility is in 
possession of a suspect product, the facility must have clearly defined 
areas in which to quarantine the suspect product until the product is 
dispositioned (section 584(d)(2)(C)(i) of the FD&C Act).
    FDA is also proposing to require that 3PLs keep illegitimate 
product and other products unfit for distribution in a clearly defined 
and designated area, separate from saleable products, until 
dispositioned so the illegitimate or otherwise unfit product is not 
inadvertently combined with saleable products (see proposed Sec.  
205.10(c)(2)). An illegitimate product poses as great a risk to public 
health, if not a greater risk, as a suspect product because a product 
is illegitimate when there is credible evidence shows that the product 
is counterfeit, diverted, stolen, intentionally adulterated such that 
the product would result in serious adverse health consequences or 
death to humans, is the subject of a fraudulent transaction, or appears 
otherwise unfit for distribution such that the product would be 
reasonably likely to result in serious adverse health consequences or 
death to humans (section 581(8) of the FD&C Act). As such, it is 
counter to public health to store products that are unfit for 
distribution alongside saleable product. Furthermore, it would be 
illogical to move suspect product that has been determined to be 
illegitimate out of quarantine and into another area to be potentially 
stored with saleable product.
8. Personnel Requirements Necessary for Good Storage Practices
    Ensuring that 3PL personnel are appropriately qualified is integral 
to establishing good storage practices (section 584(d)(2)(C) of the 
FD&C Act). For this reason, proposed Sec.  205.10(b)(3) requires that a 
3PL facility must be designed in such a manner that only personnel who 
possess appropriate and verifiable experience and training will have 
access to areas in which products are held. While not proposed to be 
required in part 205, FDA believes that a best practice in order to 
maintain the security of prescription drug products, would be for a 3PL 
to screen personnel who work in areas of its facility where 
prescription drug products are held for records of Federal or State 
criminal convictions relating to the possession, control, or 
distribution of prescription drugs. While also not proposed to be 
required in part 205, FDA believes it would be a best practice for a 
firm to request that employees state that they are not engaged in and 
will not engage in the illegal use of controlled substances while 
serving in their capacity within the 3PL.
    FDA also proposes requiring that 3PLs maintain and make available 
to the licensing authority certain information about their facilities' 
managers and designated representatives (see proposed Sec.  205.11). 
Furthermore, FDA is establishing specific employee qualifications with 
respect to facility managers or designated representatives that are 
necessary to effect good storage practices (see proposed Sec.  
205.11(b)). Specifically, FDA is proposing to require that a facility 
manager or designated representative of the facility manager serve in 
either capacity for only one facility at any one time (see proposed 
Sec.  205.11(b)(2)). FDA believes that a facility manager or designated 
representative of the facility manager must be accountable for all 
operations of a 3PL facility. That facility manager or designated 
representative must be present within the facility, and must be 
familiar with the day-to-day operations of that facility. FDA believes 
that the best way to ensure the accountability and familiarity required 
for compliance is for a designated representative or facility manager 
to serve only one facility at a time. This is to ensure that the 
facility manager or designated representative is actively engaged in 
managing the daily operations of the facility and that they remain 
aware of any non-compliance issues that may arise. To ensure the 
qualified designated representative can fulfill their obligations to 
manage and carry out daily operations, FDA proposes to require that a 
3PL provide its designated representative with adequate authority and 
the necessary resources (see proposed Sec.  205.11(c) and (d)). FDA 
believes that establishing these requirements will help ensure that the 
products handled by a 3PL are properly safeguarded to protect the 
supply chain and the public health.
    Section 584(d)(2)(E) and (F) of the FD&C Act requires mandatory 
background checks for facility managers or the designated 
representatives of facility managers to ensure that neither the 3PL's 
facility manager nor the designated representative has engaged in the 
prohibited behaviors outlined in proposed Sec.  205.11(e). 
Additionally, FDA is outlining other activities which may lead to the 
denial of licensure in proposed Sec.  205.11(f). They are not bars to 
licensure, but they are factors that may be considered by licensure 
authorities when reviewing an application for licensure to determine 
whether the 3PL has storage practices sufficient to maintain adequate 
security over the facility. FDA requests comment on this section of the 
regulation and the scenarios outlined therein.
    Requiring that individuals with significant authority over 3PL 
activities be subject to a criminal background check adds an additional 
layer of safety and security to the supply chain (see proposed Sec.  
205.11(g)). Theft of product by personnel who have direct access to 
areas where products are stored is a known problem across the 
healthcare industry; the background checks required by section 
584(d)(2)(F) of the FD&C Act that FDA is proposing here are necessary 
precautions to prevent the potential theft, loss, or abuse of 
prescription drugs.
    FDA suggests an additional best practice for a 3PL to utilize when 
staffing their operation. This best practice, related to staff who work 
within a 3PL, is designed to ensure security within a 3PL. FDA 
recommends to 3PLs that the individuals who work within their operation 
and have access to prescription drugs should not have a record of 
criminal activity involving violations of the FD&C Act or other laws 
involving prescription drugs.
    When screening personnel who work in areas of a 3PL facility where 
products are held, including the facility manager or designated 
representative, FDA recommends that a 3PL consider whether such 
personnel have (1) engaged in a pattern of violating the requirements 
of section 584 of the FD&C Act that present a threat of serious adverse 
health consequences or death to humans; (2) been found to have 
committed or facilitated commission of any prohibited acts under the 
FD&C Act or violated or facilitated any violations of any of the 
regulations in this part or analogous provisions of the State licensing 
authority, as applicable; (3) been convicted of any violation of 
Federal, State, or local laws relating to drug samples, wholesale or 
retail drug distribution, distribution of controlled substances, or 
third-party logistics services; or (4) been convicted of any felony 
under Federal, State, or local laws involving or related to 
prescription drugs. FDA believes that 3PLs should consider an 
applicant's history of violations of the FD&C Act, or other

[[Page 6720]]

laws involving prescription drugs, when making staffing decisions.
9. Required Written Policies and Procedures
    Section 584(d)(2)(C)(iii) of the FD&C Act enumerates certain types 
of written policies and procedures that FDA regulations must require, 
and tasks FDA with defining the content with more specificity. Those 
written policies and procedures are set out in proposed Sec.  205.12. 
All 3PLs would be expected to establish, maintain, and follow the 
written policies and procedures set forth in these proposed subsections 
for each 3PL facility, to the extent that the requirements of those 
sections are relevant to the scope of their specific 3PL activities. 
Under the proposed regulation, all written policies and procedures will 
be made available to the licensing authority upon request, and the 
licensing authority will be permitted to have access to and copy 
records of the 3PL to ensure that the 3PL facility is following its 
written policies and procedures (see proposed Sec.  205.12(a)). Written 
policies and procedures include those that are stored and maintained 
electronically.
    FDA is implementing the statutory requirements listed in section 
584(d)(2)(C)(iii) of the FD&C Act through proposed Sec.  205.12(c)(1) 
through (6). Under these requirements, 3PLs must maintain written 
policies and procedures to address a product's receipt, security, 
storage, inventory, shipment, and distribution. Proposed Sec.  
205.12(c)(1) through (6) details the specific elements that such 
written policies and procedures must contain. Such elements are 
necessary to maintain supply chain integrity and align with current 
industry practices to protect the integrity of the drugs that are 
distributed through the supply chain.
    To ensure good storage practices, FDA is also proposing to require 
that 3PLs establish written policies and procedures for handling not 
only expired product as required in section 584(d)(2)(C)(iii)(VI) of 
the FD&C Act, but also products that are unfit for distribution (see 
proposed Sec.  205.12(f)). Furthermore, any drug unfit for distribution 
should be segregated and returned or destroyed to prevent its 
distribution to the patient (see proposed Sec.  205.12(f)(1)). These 
requirements will ensure that drugs, the distribution of which would 
violate the FD&C Act and which may not be fit for consumption by 
American consumers for a variety of reasons, are not distributed into 
the supply chain. FDA believes that these proposed standards align with 
current industry practices.
    Similarly, to further ensure the safety and efficacy of drug 
products, FDA is proposing that 3PLs maintain written policies and 
procedures related to the storage, inventory, and disposition of both 
suspect and illegitimate products. In the case of a suspect product, 
the written policies and procedures must include the procedure for 
quarantine or destruction of the product if directed to do so by the 
product's manufacturer, wholesale distributor, dispenser, or an 
authorized government agency. In the instance of an illegitimate 
product, written policies and procedures must be in place to ensure 
that illegitimate product is appropriately dispositioned as directed by 
the respective manufacturer, wholesale distributor, dispenser, or 
authorized government agency. This may include segregation in a clearly 
defined, designated area from which the product may be dispositioned. 
FDA believes that these proposed standards align with current industry 
practices and will give 3PLs a clear roadmap for dealing with 
potentially difficult situations involving suspect and illegitimate 
product.
    Finally, FDA views it as a best practice for a 3PL to establish 
written policies and procedures to ensure that it only engages in 3PL 
activities on behalf of authorized trading partners with respect to a 
product. DSCSA requires that all other entities that accept or transfer 
direct possession or ownership in the supply chain are only permitted 
to do business with other authorized trading partners (section 582 of 
the FD&C Act). FDA believes that, to further ensure supply chain 
security and integrity, it is important that 3PLs also only do business 
with other authorized trading partners. 3PLs that engage in 
transactions with non-authorized trading partners may expose the supply 
chain to potentially harmful or substandard product. FDA notes that 
3PLs are included in the wholesale distributor and third-party 
logistics provider reporting public database (available at https://www.fda.gov/Drugs/DrugSafety/DrugIntegrityandSupplyChainSecurity/DrugSupplyChainSecurityAct/ucm423749.htm) which allows manufacturers, 
wholesale distributors, repackagers, and dispensers to determine if the 
3PL is authorized. Similarly, 3PLs should include using the publicly 
available information regarding other trading partners in their written 
policies and procedures to ensure they are doing business with only 
authorized trading partners.
10. Recordkeeping and List of Trading Partners
    The maintenance, availability, and accuracy of the records made 
available for inspection under section 584(d)(2)(D) of the FD&C Act is 
critical to demonstrate that 3PLs are acting in compliance with 
relevant laws and regulations and to ensure their records can be relied 
upon to identify any potential risk to the public health. As such, FDA 
is proposing to require that all records be securely stored, with 
procedures in place to restrict access and protect record integrity, 
and that any alterations made to records be signed and dated while 
preserving the original information contained in the record (see 
proposed Sec.  205.13(a)). These records can be stored and maintained 
electronically. These records maintenance requirements will allow for 
greater confidence in both the information that is preserved at the 
facility and the information potentially disseminated to other trading 
partners.
    FDA is proposing that all records must be retained for a minimum of 
3 years, except for records related to suspect and illegitimate 
products, product quality complaints, and destroyed, returned, and 
recalled products, which each must be retained for a minimum of 6 years 
(see proposed Sec.  205.13(b)). Such record retention is necessary not 
only to ensure 3PLs are complying with the FD&C Act, but also to ensure 
that there is consistency and continuity in the access to the 
information across the records required pursuant to sections 582, 583, 
and 584 of the FD&C Act. The DSCSA requires that, upon the licensing 
authority's request, 3PLs provide the licensing authority with a list 
of the trading partners (manufacturers, wholesale distributors, and 
dispensers) for which the 3PL conducts 3PL activities (section 
584(d)(2)(G) of the FD&C Act). This requirement would be codified in 
proposed Sec.  205.14 and would also include repackagers for which the 
3PL provides services when those repackagers are acting on behalf of a 
manufacturer, wholesale distributor, or dispenser of a product, as 
explained in the definition of other logistics services at Sec.  
205.3(i).
11. Annual and Other Reporting to FDA
    Under DSCSA, 3PLs must report certain information to FDA to be 
considered an authorized trading partner (sections 581(2)(C) and 584(b) 
of the FD&C Act). The annual reporting requirements for 3PLs went into 
effect on November 27, 2014. Proposed Sec.  205.15 clarifies the 
statutorily

[[Page 6721]]

prescribed annual reporting requirements and proposes the collection of 
additional information to provide complete and useful information about 
3PLs that can be used by FDA, States, and trading partners.
    The DSCSA requires 3PLs to report to FDA for each facility: (1) The 
State by which the facility is licensed; (2) the facility's license 
number; (3) the facility's name and address; and (4) all trade names 
under which the facility conducts business (section 584(b) of the FD&C 
Act). If a facility conducts more than one type of activity, such as 
3PL activities and wholesale distribution activities, the facility must 
be licensed as both a wholesale distributor and a 3PL and must report 
to FDA separately as a wholesale distributor and a 3PL (section 
503(e)(2) of the FD&C Act).
    FDA is proposing to require that 3PLs use an electronic system 
provided by FDA for reporting (see proposed Sec.  205.15(a)). This 
electronic system will increase efficiency by providing uniformity in 
the content and format of reports, thereby making the information 
easier to process. FDA is proposing that the annual reporting schedule 
require all 3PLs to report each calendar year between January 1st and 
March 31st, although an entity may update information at any time (see 
proposed Sec.  205.15(b)). For example, if a 3PL chooses to update a 
license on December 15, 2019, that 3PL will still have to report during 
the January 1, 2020 through March 31, 2020 annual reporting period.
    The specific information that 3PLs must electronically report to 
FDA is set forth in proposed Sec.  205.15(c). The DSCSA requires that 
3PLs report the name and address of each facility (section 584(b)(2) of 
the FD&C Act). In fulfilling this requirement, the 3PL must provide the 
address that is associated with the State or Federal license. Licensed 
entities are also required to report to FDA the State by which they are 
licensed and the license number (section 584(b)(1) of the FD&C Act). In 
addition, FDA is proposing to require that the reported company name be 
identical to the official company name appearing on the license (see 
proposed Sec.  205.15(c)(2)). Maintaining an account in FDA's 
electronic system for each 3PL facility license during the reporting 
period is integral to FDA's ability to provide oversight, as each 
facility of a 3PL must be licensed in order for the 3PL to conduct 3PL 
activities.
    In addition to the requirements specified in the statute, FDA is 
proposing to require an additional data element that FDA views as 
important to the Agency, the States, and trading partners. This 
additional information will inform other trading partners that the 3PL 
is in fact an authorized trading partner with whom they can do 
business. To this end, FDA is proposing to require that 3PLs provide 
the date each State license expires. This information is essential for 
determining that licensure status for each 3PL facility is current.
    Also, in addition to the physical address, which is required to be 
reported by statute, FDA believes that it would be a best practice for 
3PLs to submit a unique facility identifier (UFI) that corresponds with 
the facility name and facility address. The UFI for a 3PL facility is 
useful to FDA when identifying and confirming certain business 
information. To be most helpful to FDA and other trading partners, a 
3PL should obtain a separate UFI for each physical address that the 3PL 
is reporting since each 3PL facility must meet the 3PL requirements, 
and licensure is facility specific. FDA also believes that it would be 
a best practice for 3PLs to submit the contact information of an 
individual who will interact with FDA, including that individual's 
name, telephone number, and email address. FDA recommends as a best 
practice that the 3PL designate a contact person who is familiar with 
the daily operations of the 3PL facility, such as the designated 
representative, to ensure efficient processing of inquiries and 
minimize the impact inquiries may have on the daily operations of the 
facility.
    It is important for other trading partners and FDA to know whether 
a 3PL has had a license revoked or suspended or whether a 3PL has had 
any other significant disciplinary actions taken against them that 
limits the ability of a facility to conduct drug-related business. As 
such, 3PLs must report significant disciplinary actions to FDA. This 
will involve providing a DEA registration number or State controlled 
substance license number when there is a significant disciplinary 
action issued by the DEA or the State controlled substance licensing 
authority that would limit the ability of the 3PL facility to conduct 
3PL activities related to the distribution of controlled drug 
substances that meet the definition of product, as defined at Sec.  
205.3(k). In such a situation, information about the DEA registration 
or State controlled substance license is important because the 
disciplinary action would likely be associated with that specific 
license or registration.
    A significant disciplinary action is defined in the proposed 
regulation as an action that limits the ability of a facility to 
conduct 3PL activities related to the distribution of prescription drug 
products. FDA proposes that, within 30 calendar days after a 
significant disciplinary action is imposed or taken by a State or 
Federal government, 3PLs must report the type of disciplinary action, 
the date the action was taken, and the State where the disciplinary 
action occurred, as well as submit any documents associated with the 
disciplinary action, including a final ruling by the relevant State or 
Federal agency or board or a consent decree.
    Finally, FDA is proposing to require a 3PL to report to FDA within 
30 calendar days of ceasing warehousing or other logistics services 
that it is going out of business or voluntarily withdrawing a 3PL 
license from a State. FDA believes reporting this information is 
essential for the information in the public database to be complete, 
accurate, and useful for FDA, the States, and trading partners.
    To ensure efficient enforcement of FD&C Act requirements and to 
make public the voluntary information provided by each 3PL facility, 
FDA proposes adding 3PL licensure to the public database to make 
information about 3PLs available on FDA's website. Having the license 
status of 3PLs in one publicly available database will help FDA, 
trading partners, and other stakeholders determine whether 3PLs are 
properly licensed and authorized.
12. Inspection Provisions
    Section 584(d)(2)(D) of the FD&C Act requires that the regulations 
provide for periodic inspections of 3PL facilities to ensure compliance 
with the national standards and directs FDA to determine the intervals 
at which periodic inspections of a 3PL will be conducted by the 
licensing authority to ensure a facility's compliance with the law and 
this regulation. To this end, FDA is proposing to require that a 
physical inspection of a 3PL facility be conducted prior to issuance of 
the initial license and routinely once every 3 years thereafter (see 
proposed Sec.  205.16(a) and (b)). The regulation proposes allowing the 
licensing authority, or an AO, as determined by the licensing 
authority, to conduct physical inspections (see proposed Sec.  
205.16(a)). As used in part 205, subparts A and B, licensing authority 
means the State licensing authority or FDA. When developing the 
timeframes for inspections, FDA sought to balance the risk to the 
supply chain while considering FDA's and State agencies' resource 
constraints. FDA is proposing to require that the physical inspection 
of a 3PL facility warehouse space include

[[Page 6722]]

the paper and electronically stored records detailing the processes 
related to all 3PL activities (see proposed Sec.  205.16(c)). FDA has 
authority to require that an inspection of a 3PL warehouse include the 
3PL's records, files, and processes related to product warehousing. 
Section 704(a)(1) of the FD&C Act (21 U.S.C. 374(a)(1)) states that 
``in the case of any . . . warehouse . . . in which prescription drugs 
. . . are held, inspection shall extend to all things therein 
(including records, files, papers, processes, controls, and 
facilities).'' This authority directly applies to FDA's ability to 
inspect a 3PL's facility warehouse space for relevant records and files 
to ensure compliance with the FD&C Act. FDA also proposes to require 
that 3PLs permit inspections at reasonable times and that the licensing 
authority conduct its inspection in a reasonable manner (see proposed 
Sec.  205.16(c) and (d)).

D. Approved Organizations for 3PLs

1. Approval and Utilization of Outside Organizations in the Licensure 
Process
    The DSCSA requires that regulations codified by FDA establish a 
process by which a third-party organization approved by FDA shall, upon 
a 3PL's request, ``issue a license'' to each 3PL facility that meets 
the requirements for licensure (section 584(d)(2)(A) of the FD&C Act). 
However, in situations where a State has not established a licensure 
program in accordance with the regulations, the DSCSA charges FDA with 
issuing 3PL licenses, provided the applicable requirements for 
licensure are met (section 584(a)(1)(B) of the FD&C Act). Accordingly, 
FDA interprets the language of 584(d)(2)(A) of the FD&C Act to mean 
that a third-party organization approved by FDA--an AO--will conduct a 
review of the 3PL's qualifications for licensure and issue a report to 
FDA regarding whether the 3PL ``demonstrates that all applicable 
requirements for licensure . . . are met,'' which FDA can rely on when 
issuing a license per section 584(e) of the FD&C Act.
    The DSCSA allows States and FDA to approve organizations for 
purposes of licensure review and periodic inspection. Proposed 
Sec. Sec.  205.17, 205.18, and 205.19 contain the process that FDA will 
use to approve organizations and the qualifications to become an AO. 
FDA suggests that States that choose to rely on AOs for licensure 
reviews have in place the same or similar processes for approved 
organizations to conduct licensure reviews and for decisions affecting 
the approval status of those organizations.
    The scope of work AOs would be tasked with performing and the 
standards an AO must meet to become approved are detailed in subpart B 
of proposed part 205. The proposed rules also set forth the process by 
which FDA will approve organizations to review the qualifications of 
3PL facilities for licensure, which we refer to as a ``licensure 
review.''
    A licensure review consists of performing a review of all documents 
submitted to the licensing authority in support of an application for 
3PL licensure and conducting an inspection of the facility as directed 
by the licensing authority. If a review of documentation supports 
licensure of the 3PL facility, the facility will then be inspected by 
an AO, as directed by FDA. FDA is proposing that the AO's licensure 
review be completed within 90 days upon receiving notice from the 
Agency to conduct the licensure review. FDA believes that this 90-day 
timeframe is sufficient for an AO to perform the work with which they 
are tasked while also ensuring that there are no undue delays in the 
licensure process. Upon completion of the licensure review, the AO 
would then provide FDA with a licensure review report within 7 days 
(see proposed Sec.  205.17(b)), with a copy sent to the 3PL facility. 
As proposed, using the report submitted by the AO, FDA would make the 
final determination as to whether a 3PL facility should be issued a 
license. The process that AOs should follow when conducting routine 
inspections of 3PL facilities mirrors the process for licensure review 
and is detailed in proposed Sec.  205.17(c).
    It is important that FDA can verify an AO's continued compliance 
with the approval requirements. Therefore, to keep its approval, FDA is 
proposing to require that an AO maintain certain records for a period 
of at least 5 years and these records must be readily available to FDA 
upon request. Unless specified by statute, we believe it is reasonable 
for the required length of maintenance of records to align with the 
length of the entity's licensure term. In addition, to ensure public 
safety, FDA is proposing to require that AOs report potential 
violations at 3PL facilities to FDA within 24 hours of discovery (see 
proposed Sec.  205.17(f)). The general qualifications for approval of 
AOs are set out in proposed Sec.  205.18.
    To become and remain approved, FDA is proposing to require that an 
organization, and those employed by the organization, abide by certain 
requirements that are intended to secure against conflicts of interest, 
promote professional business practices, and protect non-public 
information (see proposed Sec.  205.18(a)).
    FDA is proposing to allow AOs to hire outside contractors to 
conduct licensure reviews or licensure review-related activities. Under 
FDA's proposed regulation, AOs who decide to use outside contractors 
must ensure that the contractors not only effectively carry out the 
licensure review or licensure review-related activities in a manner 
consistent with this proposed regulation to ensure public health, but 
the AO must also ensure that the contractors properly protect all non-
public information.
    For an AO to maintain approval, FDA proposes to require that the AO 
ensures contractors abide by all applicable confidentiality agreements, 
that the AOs have policies and procedures in place to ensure the 
contractors abide by these proposed standards, and that the contractors 
have the necessary training and expertise to carry out licensure 
reviews (see proposed Sec.  205.18(b)(1)). Also, before a contractor 
hired by an AO may perform a licensure review of a 3PL facility, the 
3PL must have entered into an agreement with the AO giving the AO 
permission to share with contractors the 3PL's confidential commercial 
information (see proposed Sec.  205.18(b)(2)). If such consent is not 
provided by the 3PL facility, the AO must perform the licensure review 
itself. FDA believes that this approach is reasonable given that it is 
the AO's decision to work with contractors and, under this proposed 
regulation, the ultimate responsibility for the licensure review rests 
with the AO.
    In addition, so FDA may keep track of which organization is 
responsible for each licensure review, FDA proposes that AOs must 
submit to FDA a list of the contractors used by the organization each 
year and the AO must certify that such contractors comply with the 
applicable requirements (see proposed Sec.  205.18(b)(3)). Finally, to 
ensure that the standards set forth in this regulation are followed and 
that lines of responsibility are clear, FDA proposes to require that 
the AOs remain responsible for all the work performed by outside 
contractors (see proposed Sec.  205.18(b)).
    FDA proposes to prohibit contractors from subcontracting licensure 
review or licensure review-related activities (see proposed Sec.  
205.18(b)(1)(ii)). Limiting the ability of contractors to further 
delegate their responsibility ensures that FDA will have accurate 
information about who is conducting licensure reviews, that those 
responsible for the licensure reviews have the necessary

[[Page 6723]]

qualifications, and that their conduct is governed by this proposed 
regulation.
    The proposed process that FDA will use to approve organizations, 
including the application process, as well as the process for 
suspending or revoking an organization's approval, are set forth in 
proposed Sec.  205.19. To ensure compliance with DSCSA, FDA is 
proposing that organizations seeking approval by FDA must first 
electronically submit to FDA an application demonstrating the 
organization's ability to assess compliance with all 3PL requirements 
detailed in proposed Sec.  205.19 (see proposed Sec.  205.19(a) and 
(b)). Organizations must also provide training that their employees 
must pass before they may conduct licensure reviews (see proposed Sec.  
205.19(c)). To verify information contained in the application and 
further ensure compliance with the proposed regulation, FDA proposes 
that, before an AO may conduct its first licensing review, it must be 
audited by FDA (see proposed Sec.  205.19(d)). A new approval will be 
valid for 5 years (see proposed Sec.  205.19(e)).
    If an organization's request for approval is denied, the 
organization may issue a request for reconsideration under 21 CFR 10.75 
(see proposed Sec.  205.19(f)). In addition, to ensure compliance and 
protect public health, FDA proposes that an AO may have its approval 
suspended if it does not maintain the standards outlined in this part 
(see proposed Sec.  205.19(g)). A suspended AO must cease all 3PL 
licensure review including any pending inspections of 3PL facilities. A 
suspended AO must notify any 3PLs under a pending licensure review by 
the AO, of the AO's suspension within 7 calendar days (see proposed 
Sec.  205.19(g)(5)). While most suspensions will happen only after 
notice and opportunity to request a hearing, under the proposed 
regulations, FDA reserves the ability to suspend approval prior to a 
hearing if there is a reasonable probability that the organization's 
noncompliance will cause imminent and serious adverse health 
consequences or death to humans (see proposed Sec.  205.19(h)).
    Furthermore, FDA proposes that a suspended approval can be 
reinstated if the issue is resolved within 1 year from the date of 
suspension (see proposed Sec.  205.19(i)), though it may be revoked if 
the organization fails to rectify the situation that resulted in the 
suspension (see proposed Sec.  205.19(j)). FDA believes that 1 year 
provides the AO enough time to remedy most situations. An AO's approval 
may also be reinstated on a conditional basis. If the AO is 
conditionally reinstated, they will enter a three-year probationary 
period, during which if any material deficiencies arise, their license 
will be subject to immediate revocation (see proposed Sec.  
205.19(i)(2)).
    FDA also proposes to permit an AO to voluntarily withdraw its 
approval, but it must inform FDA of any facilities with pending reviews 
(see proposed Sec.  205.19(l)). To further ensure that pending 
licensure reviews are not overlooked, under FDA's proposed regulation, 
an AO whose approval has been suspended, revoked, or voluntarily 
withdrawn has the responsibility to report this information to those 
3PL facilities with pending licensure reviews (see proposed Sec.  
205.19(m)); this will stop the clock on the 90-day licensure review 
while the 3PL applies for licensure review from another AO or FDA. 
Also, to ensure that the AOs continue to meet the standards put forth 
in this subpart, and part 205 generally, under the proposed 
regulations, an AO must inform FDA of any changes to information that 
was submitted as part of its application for approval (see proposed 
Sec.  205.19(n)(1)). Since the approval of an organization is 
nontransferable, changes in ownership also require an AO to submit a 
new application to FDA (see proposed Sec.  205.19(n)(2)). Finally, as 
an additional assurance that an AO continues to comply with the 
provisions of this part, FDA proposes to require that AO's remain 
subject to periodic audits by FDA (see proposed Sec.  205.19(o)).

E. National Standards for Wholesale Distributors

1. Requirement That Wholesale Distributors Be Licensed
    To implement section 503(e)(1) of the FD&C Act, FDA is proposing to 
codify at Sec.  205.20(a) the requirement that a wholesale distributor 
be licensed by the State from which the drug is distributed, or by FDA 
if the State from which the drug is distributed has not established a 
licensure requirement in accordance with the standards proposed herein, 
as well as by the State into which the drug is distributed if that 
State requires such a license. This requirement is consistent with how 
States currently license wholesale distributors.
    FDA anticipates that, for the purposes of annual reporting, a 
wholesale distributor who maintains multiple licenses to engage in 
wholesale distribution, will be able to report their required 
information aggregately for all their licenses (section 503(e)(2) of 
the FD&C Act). FDA believes this approach will increase efficiency for 
both wholesale distributors and the Agency, ensure that licenses for 
wholesale distribution facilities will be granted to qualified firms, 
and ensure records related to their facilities will be maintained in an 
organized fashion.
    In addition, FDA proposes to set the licensure term for wholesale 
distributors at 2 years (see proposed Sec.  205.20(b)). FDA considered 
current State requirements, as well as the potential impacts on State 
and Agency resources, to determine the term for licensure. Ultimately, 
the Agency believes that 2 years aligns with current practices, does 
not place an undue burden on State or FDA resources, and provides 
adequate protection to American consumers because it ensures that 
renewals will be based on current information and operations.
2. Surety Bonds
    Wholesale distributors are required to obtain a surety bond to be 
licensed and engage in wholesale distribution (section 583(b)(3) of the 
FD&C Act). FDA is proposing to establish the terms of this requirement 
in proposed Sec.  205.21. To receive or renew a license, a surety bond 
of $100,000, or $25,000 if applicable (for wholesale distributors with 
annual gross receipts of $10,000,000 or less), must be in place at the 
time the wholesale distributor's application for licensure or licensure 
renewal is submitted to the licensing authority (see proposed Sec.  
205.21(b)). The surety bond is intended to ensure compliance with DSCSA 
and that any administrative penalties levied by the licensing 
authorities are paid. DSCSA also permits the furnishing of ``other 
equivalent means of security acceptable to the State'' in lieu of a 
bond (section 583(b)(3)(A)(i) of the FD&C Act). It would be up to the 
State licensing authority to determine what, if anything, would 
constitute an equivalent means of security to a surety bond. Where FDA 
is the licensor, the wholesale distributor would need to furnish a 
surety bond to satisfy the bond requirement as other equivalent means 
of security appear to be specifically reserved for the States.
    While a bond is required before a wholesale distributor may acquire 
the necessary license, section 583(b)(3)(B) of the FD&C Act provides a 
set of circumstances under which the surety bond requirement will be 
waived. FDA is proposing to codify at Sec.  205.21(b)(3) the DSCSA 
requirement that if a wholesale distributor can prove it has the 
necessary bond for the State where the facility is located (e.g., by 
providing a copy of the existing security bond

[[Page 6724]]

agreement), the requirement for an additional surety bond for another 
State is waived. In this situation, the wholesale distributor does not 
have to acquire an additional bond to satisfy the non-resident 
licensure requirements of the State into which the wholesale 
distributor plans to distribute. However, it remains unclear if and how 
this waiver should apply when an equivalent means of security to the 
surety bond are used. FDA requests comment specifically related to the 
waiver to the surety bond requirement and whether that waiver should 
apply to scenarios where some other equivalent means of security is 
used in lieu of a surety bond.
    The terms that a surety bond must include are outlined in proposed 
Sec.  205.21(c). FDA proposes to require not only that the terms cover 
the liability requirements related to administrative penalties, but 
also that the bond remain in full force for 1 year after the license 
expires and that the surety company guarantee payment within 30 days of 
receiving notice from the licensing authority. FDA also proposes 
permitting licensing authorities to make claims against the surety bond 
for 1 year after the wholesale distributor's license expires or within 
60 days after an administrative or legal proceeding has concluded, 
whichever is longer. These timeframes seek to ensure that the rights of 
the different parties involved in a potential claim will be adequately 
protected. This is particularly important with respect to the waiver 
because it allows the affected States equal access to the surety bond 
and ensures consistent standards across States.
    The implications of termination or lapse in coverage of a surety 
bond are detailed in proposed Sec.  205.21(d). A wholesale distributor 
may cancel its surety bond, but FDA proposes to require that it give 
all impacted licensing authorities 30 days' prior notice before such 
cancellation take effect. Such notice is necessary because a wholesale 
distributor's license will be suspended upon the cancellation of the 
surety bond unless the wholesale distributor acquires a new bond before 
to the old bond is cancelled. FDA proposes that a license will be 
suspended if a licensing authority discovers a lapse in bond coverage.
    FDA also proposes to require that the surety bond permit actions to 
be brought by either a State or Federal licensing authority (see 
proposed Sec.  205.21(e)), provide the contact information for the 
surety company (see proposed Sec.  205.21(f)), and name the specific 
parties to the surety bond (see proposed Sec.  205.21(h)).
3. General Requirements for Licensure
    This section includes the requirements for the application. FDA 
notes that the applicant would have to demonstrate compliance with the 
requirements as set forth in subpart C, including a satisfactory 
inspection, as described in proposed Sec.  205.28, and criminal 
background checks for facility managers and designated representatives, 
as described in proposed Sec.  205.25, to be granted a wholesale 
distributor license.
    The general application requirements that must be met for a State 
or Federal licensing authority to issue a wholesale distributor license 
are set forth in proposed Sec.  205.22. The requirements applicable to 
the individual who submits the licensure application are detailed in 
proposed Sec.  205.22(a). FDA proposes to require that the applicant 
submit all required information and pay a licensing fee in order to be 
considered for licensure. FDA believes these general requirements align 
with current industry practices.
    FDA is proposing at Sec.  205.22(b) to require that the applicant 
provide the surety bond or other equivalent means of security 
acceptable to the State, required by section 583(b)(3) of the FD&C Act 
and detailed in proposed Sec.  205.21, as part of the wholesale 
distributor's application for a license.
    The information that the licensing authority will require as part 
of a wholesale distributor's initial application for licensure and 
renewal applications is set forth in proposed Sec.  205.22(c) and (d). 
This information is necessary for the licensing authority to assess 
whether the wholesale distributor is in good standing and has the 
infrastructure and capabilities to fulfill the duties and obligations 
of licensure. For example, FDA is proposing to require that a wholesale 
distributor inform FDA if it has received any citations for violating 
requirements for licensure or received any significant disciplinary 
actions within the past 7 years (see proposed Sec.  205.22(c)(8)). FDA 
believes this information is necessary to ensure the wholesale 
distributor can demonstrate that it has not engaged in a pattern of 
violating the standards for licensure. The DSCSA defines prohibited 
persons, in part, as licensees who have ``engaged in a pattern of 
violating the requirements of this section, or State requirements for 
licensure, that presents a threat of serious adverse health 
consequences or death to humans'' (section 583(d) of the FD&C Act). 
Therefore, this information is necessary to demonstrate that a 
wholesale distributor is not prohibited from receiving or maintaining 
licensure for wholesale distribution.
    Finally, FDA proposes to require that a wholesale distributor's 
license be readily retrievable at the facility, and that the facility 
permit State or Federal inspectors, or others acting on behalf of the 
licensing authority, to inspect the license (see proposed Sec.  
205.22(e)).
4. The Federal Licensure Process
    Section 503(e) of the FD&C Act, as amended by DSCSA, requires FDA 
to license wholesale distributors directly if the State in which it 
engages in wholesale distribution has not established a licensing 
requirement (section 503(e)(1) of the FD&C Act). Proposed Sec.  205.23 
details the process that FDA will use when issuing licenses to 
wholesale distributors. While this section is only applicable to 
wholesale distributors obtaining a license from FDA, FDA suggests 
States implement similar procedures to ensure that all wholesale 
distributor licenses issued are consistent with the proposed regulation 
pursuant to section 503(e)(1)(B) of the FD&C Act. FDA plans to make 
information available to clarify who is the appropriate licensing 
authority in the wholesale distributor's State. FDA believes this 
streamlined process for application will allow for greater clarity and 
harmonization across the industry.
    For wholesale distributor license applications submitted to FDA, 
FDA proposes that the wholesale distributor submit the application 
electronically, including the information outlined in proposed 
Sec. Sec.  205.21 and 205.22, along with additional supporting 
documentation (see proposed Sec.  205.23(a)(1)). The DSCSA authorizes 
FDA's use of third-party organizations--AOs--to conduct inspections of 
wholesale distributors required under section 583(c) of the FD&C Act. 
If FDA has approved one or more AOs to inspect wholesale distributors, 
the wholesale distributor should note the AO it prefers to conduct its 
inspection on the application submitted to FDA (see proposed Sec.  
205.23(a)(2)). If no AO has been approved, FDA will conduct the 
inspection (see proposed Sec.  205.23(a)(3)). Furthermore, submission 
of the application to FDA will not be considered complete until FDA 
receives all pertinent information and fees (see proposed Sec.  
205.23(a)(5)).
    While the DSCSA permits AOs to conduct inspections of wholesale 
distributors applying for licensure, the responsibility of determining 
whether a wholesale distributor meets all the applicable requirements 
set forth in this proposed regulation remains with FDA (see proposed 
Sec.  205.23(b)). To avoid

[[Page 6725]]

delays in the licensure process, FDA intends to work with wholesale 
distributors to correct minor errors made on the application (e.g., 
missing written policies and procedures) and communicate with the 
wholesale distributor about additional information the Agency may need 
to process and review the application (see proposed Sec.  205.23(c)). 
If the wholesale distributor meets the requirements outlined in this 
proposed part and none of the prohibited factors listed in proposed 
Sec.  205.30(a)(1) are present, FDA will approve the application and 
send an approval letter and license certificate (see proposed Sec.  
205.23(d)).
    FDA recognizes that a wholesale distributor may have concerns about 
what happens to the status of its license if disciplinary sanctions are 
taken against the approval status of the AO that conducted its 
inspection when applying for licensure or if the organization is 
otherwise no longer considered an approved AO. While FDA believes that 
a wholesale distributor should not be penalized for the actions of the 
AO, FDA must ensure that the AO's review and findings provide a 
reliable basis for licensing decisions. As such, FDA is proposing that, 
if the wholesale distributor is otherwise in good standing, a change in 
the approval status of the AO that conducted the inspection of the 
wholesale distributor will not automatically affect the licensure of a 
licensed wholesale distributor (see proposed Sec.  205.23(e)). Rather, 
in the event that an AO has disciplinary sanctions taken against it, 
ends its business, or is otherwise no longer considered an approved AO, 
the license of any wholesale distributor reviewed by that AO will be 
subject to appropriate action in accordance with Sec.  205.30 and other 
applicable statutes or regulations. FDA may verify the wholesale 
distributor's compliance status and review the facts in that situation 
to determine the potential effect, if any, on the licensure of 
wholesale distributors inspected by that AO.
5. Changes to Information, Ownership, or Location of Licensed Wholesale 
Distributors
    FDA recognizes that information about a business can change over 
time. However, for the licensing authority to effectively carry out its 
responsibilities, license information must remain current and changes 
in information previously submitted must be reported to the licensing 
authority. Currently, the reporting requirements for these types of 
changes vary by State. FDA is proposing the establishment of specific 
timeframes for reporting changes (see proposed Sec.  205.24) and 
believes that standardizing the timeframes will help make reporting 
business-related changes less burdensome for industry and licensing 
authorities. FDA is proposing that the wholesale distributor submit 
changes to certain information, such as the information submitted with 
a surety bond or as part of an application for licensure, to the 
licensing authority within 30 calendar days of the date the change 
became effective (see proposed Sec.  205.24(a)). Significant changes, 
such as changes in location or changes to the person engaged in 
wholesale distribution, require the added scrutiny that comes with an 
inspection or review of an application for a new license to ensure that 
the entity will be able to continue to meet the standards for licensure 
in its new location or under its new management. For this reason, FDA 
is proposing that changes in location or changes to the person engaged 
in wholesale distribution will require an inspection or new license 
(see proposed Sec.  205.24(b) and (c)). FDA recognizes that the 
ownership of a facility from which a wholesale distributor leases the 
facility and conducts wholesale distribution may change without the 
wholesale distribution operation changing in any meaningful way. If 
that change does not impact the wholesale distribution operation, the 
wholesale distributor will not need to apply for a new license. As 
described in proposed Sec.  205.24(b)(1), the date the change of 
location takes place is the date the new location begins receiving 
prescription drugs.
6. Prohibited Persons and Qualifications for Key Personnel
    The FD&C Act, as amended by DSCSA, requires FDA to establish and 
implement standards for the qualifications of wholesale distributors' 
key personnel (section 583(b)(5) of the FD&C Act). As discussed above 
and proposed at Sec.  205.3(g), FDA considers key personnel to include 
individuals with responsibility for managing the operations of the 
wholesale distributor, including any principal, owner, director, 
officer of the wholesale distributor, facility manager or designated 
representative, or other individuals who are authorized to enter into 
areas where prescription drugs are held and are likely to handle those 
prescription drugs as a part of their responsibilities within the 
operation. FDA believes the qualifications for key personnel proposed 
in Sec.  205.25 are necessary to ensure that all the individuals who 
are responsible for operating the wholesale distributor's facility are 
appropriately qualified to carry out their duties and that the 
wholesale distributor meets the national standards.
    Proposed Sec.  205.25(a) lists conduct that prohibits a wholesale 
distributor from obtaining licensure. Proposed Sec.  205.25(b) 
establishes the basic standards for key personnel working within a 
wholesale distribution facility. Key personnel must have the 
appropriate education, background, training, and experience necessary 
to carry out their assigned functions within the operation. No one 
within the facility should carry out the responsibilities of key 
personnel without the proper training and expertise.
    As a part of FDA's responsibility to establish and implement 
standards for the qualifications of wholesale distributors' key 
personnel, FDA is proposing that wholesale distributors and their key 
personnel meet certain other qualifications. Licensure may be denied if 
a wholesale distributor or any of their key personnel do not meet the 
standards for qualification as outlined in proposed Sec.  205.25(c).
    Key personnel working for a wholesale distributor hold critical 
positions of trust for protecting the security of the prescription drug 
supply chain. FDA believes it would be a best practice for a firm to 
require that all employees not engage in the illegal use of controlled 
substances while serving in their capacity in the wholesale 
distribution operation and request that all employees so state.
    FDA is proposing to require wholesale distributors to establish and 
implement written policies and procedures to ensure that their key 
personnel meet the qualifications contained in this proposed section 
(see proposed Sec.  205.25(e)) and to maintain certain information 
about their key personnel that demonstrates they are qualified to carry 
out the duties assigned to them (see proposed Sec.  205.25(b)), 
including having the proper education and training (see proposed Sec.  
205.25(e)(3)). Proposed Sec.  205.25(f) also limits a facility manager 
or designated representative to hold that position at one facility at a 
time. This is to ensure that the facility manager or designated 
representative is actively engaged in managing the daily operations of 
the facility and that they remain aware of any non-compliance issues 
that may arise.
    The FD&C Act, as amended by DSCSA, specifically requires licensure 
standards to include mandatory background checks and fingerprinting of 
wholesale distributor facility managers and their designated 
representatives

[[Page 6726]]

(section 583(b)(4) of the FD&C Act). Entrusting individuals with the 
responsibility of distributing prescription drugs prior to a criminal 
background check may jeopardize the integrity of the drug supply chain 
and leave the public exposed to unnecessary harm posed by the possible 
introduction of drugs that are unsafe. FDA is proposing to codify at 
Sec.  205.25(g) the requirement for facility managers and their 
designated representatives to submit a full set of fingerprints to 
conduct local and national criminal background checks. The background 
check, when completed, must demonstrate that the facility manager or 
designated representative has no history of criminal convictions 
pursuant to proposed Sec.  205.25(a).
    FDA suggests, when a wholesale distributor staffs its operation, it 
is a best practice that the individuals who work within their operation 
and have access to prescription drugs not have a record of criminal 
activity involving violations of the FD&C Act or other laws involving 
prescription drugs. This best practice is recommended to help ensure 
security within a wholesale distributor.
    When screening personnel who work in areas of a facility where 
prescription drugs are held, including the facility manager or 
designated representative, FDA recommends that a wholesale distributor 
consider whether such personnel have (1) engaged in a pattern of 
violating the requirements of section 583 of the FD&C Act that present 
a threat of serious adverse health consequences or death to humans; (2) 
been found to have committed or facilitated commission of any 
prohibited acts under the FD&C Act or violated or facilitated any 
violations of any of the regulations in this part or analogous 
provisions of the State licensing authority, as applicable; (3) been 
convicted of any violation Federal, State, or local laws relating to 
drug samples, wholesale or retail drug distribution, distribution of 
controlled substances, or 3PL services; or (4) been convicted of any 
felony under Federal, State, or local laws involving or related to 
prescription drugs. FDA believes that wholesale distributors should 
consider an applicant's history of violations of the FD&C Act or other 
laws involving prescription drugs when making staffing decisions.
7. Wholesale Distributor Storage and Handling of Prescription Drugs, 
and Required Policies and Procedures
    The DSCSA charges FDA with creating national standards for the 
storage and handling of prescription drugs by wholesale distributors, 
including facility requirements (section 583(b)(1) of the FD&C Act). To 
ensure confidence that the prescription drug delivered maintains its 
quality and integrity throughout the distribution process, FDA believes 
that wholesale distributors should establish and maintain quality 
systems that encompass the organizational structure, account for 
potential vulnerabilities or threats to the systems, and clearly 
articulate the procedures and processes for all wholesale distribution 
activity. A proper quality system should be fully documented, and the 
effectiveness of the system should be continually monitored to ensure 
the quality is maintained. This includes ensuring that facilities and 
equipment are properly maintained for their purposes of storing and 
distributing prescription drugs; that personnel are properly qualified, 
screened, and trained for their positions; and that documentation is 
comprehensive. Regular management review of all aspects of the quality 
systems in place is important for maintaining these high standards. FDA 
proposes Sec.  205.26, which establishes basic requirements that will 
assist wholesale distributors in achieving these goals.
    Although the FD&C Act permits an entity to be more than one type of 
trading partner so long as it complies with all the applicable 
requirements (section 582(a)(1) of the FD&C Act), FDA believes that the 
processes and functions of each type of entity need to be kept separate 
for the licensing authority to ensure the entity is complying with all 
the applicable requirements. Accordingly, FDA is proposing that any 
wholesale distributor's facility that is also licensed or registered as 
another trading partner and operating from the same address must have 
separate systems and processes in place for their separate functions 
(see proposed Sec.  205.26(a)).
    FDA believes that proper storage and handling of prescription drugs 
inherently requires the establishment of standards that address 
physical requirements for the facility space in which drugs are stored 
and handled, along with standards that address the manner in which 
drugs are to be securely stored and handled within the facility of a 
wholesale distributor. In Sec.  205.26(b), FDA proposes the following 
requirements with regard to standards placed on the wholesale 
distributor's facility. FDA believes these facility requirements will 
ensure that their establishments are appropriate for the distribution 
(including storage) of prescription drugs.
    The facility must be of a suitable size, configuration, and design 
to ensure proper storage, maintenance, and cleanliness (see proposed 
Sec.  205.26(b)(1)(ii) through (iv)). The facility must also be 
equipped with clearly defined areas that separate drugs that are unfit 
for distribution, from those that are saleable to avoid potential 
mistakes when distributing the prescription drugs (see proposed Sec.  
205.26(b)(1)(vi)).
    The facility must be sufficiently secure to protect the 
prescription drugs in the supply chain from possible theft or diversion 
(see proposed Sec.  205.26(b)(2)). Facilities must protect against 
unauthorized entry and ensure that the premises are well lit and not 
vulnerable to intrusion (see proposed Sec.  205.26(b)(2)(i) through 
(iii)). Entry and access to areas where prescription drugs are held 
within the facility must be limited to those who have the appropriate 
experience and training needed to conduct wholesale distribution (see 
proposed Sec.  205.26(b)(2)(iv)). These basic security requirements 
will help wholesale distributors protect and safeguard the prescription 
drugs maintained in their facility.
    A wholesale distributor has the responsibility of ensuring that 
prescription drugs are stored under proper conditions to maintain the 
safety and effectiveness of the drugs it distributes. Accordingly, a 
wholesale distributor's facility must maintain appropriate equipment 
(e.g., refrigeration and air conditioning equipment) in good working 
order to ensure that prescription drugs are properly stored in the 
facility (see proposed Sec.  205.26(b)(3)). To this end, FDA is 
proposing to require that a wholesale distributor establish written 
procedures to ensure that its equipment is installed and maintained by 
qualified individuals (see proposed Sec.  205.26(b)(3)(i)). Written 
policies and procedures include those that are stored and maintained 
electronically. Upon inspection, a wholesale distributor must 
demonstrate and verify that its equipment is in working order and has 
been periodically assessed in accordance with the wholesale 
distributor's written procedures to ensure the equipment's continued 
functionality (see proposed Sec.  205.26(b)(3)(i)), which is critical 
in ensuring that those drugs retain their safety and effectiveness 
throughout the supply chain.
    Additionally, a wholesale distributor must regularly conduct and 
document facility assessments to make sure that drugs are properly 
stored in accordance

[[Page 6727]]

with their labeling (see proposed Sec.  205.26(b)(4)).
    FDA expects that, as a crucial part of the creation of a quality 
system, wholesale distributors will establish, maintain, and follow 
written policies and procedures regarding the safeguarding of the 
prescription drugs within their control. Proposed Sec.  205.26(c) 
outlines several requirements for maintaining written policies and 
procedures to ensure that the requirements are carried out properly and 
consistently. Wholesale distributors are not limited to establishing 
written policies and procedures for the stated functions in proposed 
Sec.  205.26(c), as a wholesale distributor may wish to establish 
written policies and procedures pertaining to other aspects of 
wholesale distribution and staffing of their facilities. The purpose of 
requiring written policies and procedures is to assist staff and 
management at a wholesale distribution facility to determine the 
processes required to ensure safe storage and distribution of 
prescription drugs.
    Proposed Sec.  205.26(c) includes the requirement that wholesale 
distributors establish and follow written policies and procedures to 
ensure that a wholesale distributor: (1) Only does business with other 
authorized trading partners (see proposed Sec.  205.26(c)(1)); (2) 
properly maintains equipment in good working order as outlined in 
proposed Sec.  205.26(b)(3) (see proposed Sec.  205.26(c)(2)); (3) 
transports prescription drugs in a manner designed to avoid breakage 
and exposure (see proposed Sec.  205.26(c)(3)); (4) inspects shipping 
containers for suspect or illegitimate products, as well as other 
quality issues that may render the prescription drug unfit for 
distribution (see proposed Sec.  205.26(c)(4)); (5) stores and handles 
the prescription drugs they warehouse and distribute in accordance with 
the prescription drug's labeling (see proposed Sec.  205.26(c)(5)); (6) 
properly retains, returns, or destroys drugs removed from the supply 
chain depending on the proper disposition of the prescription drug (see 
proposed Sec.  205.26(c)(6)); and (7) is prepared to protect against 
reasonably foreseeable crises that could affect security or operations 
at the facility (see proposed Sec.  205.26(c)(7)).
8. Recordkeeping
    Proper recordkeeping is essential to the timely identification, 
recording, and reporting of issues arising within the supply chain. 
Section 583(b)(2) of the FD&C Act requires FDA to create national 
standards for establishing and maintaining records pertaining to the 
distribution of prescription drugs. FDA is proposing in Sec.  205.27(a) 
that these records include documentation pertaining to the security, 
storage, handling, inventory, shipping, sale, purchase, trade, 
delivery, and receipt of prescription drugs, as well as policies, 
procedures, instructions, contracts, data, inspection reports, and any 
other documentation related to compliance with this part, such as 
invoices, purchase orders, packing slips, and shipping records. These 
records could be stored and maintained electronically. These records 
maintenance requirements will allow for greater confidence in the 
information preserved at the facility and potentially disseminated to 
other trading partners.
    The maintenance, availability, and accuracy of the records made 
available for inspection under section 583(b)(6) of the FD&C Act are 
critical to ensure that wholesale distributors are acting in compliance 
with this proposed regulation and that the records can be relied upon 
to identify any potential risk to the public health. As such, FDA is 
proposing to require that all records be securely stored, and that any 
alterations made to records be signed and dated, while preserving the 
original information contained in the record (see proposed Sec.  
205.27(b)). This is intended to ensure that all records related to the 
distribution of prescription drugs provide transparency and accurately 
reflect the activities of the wholesale distributor. FDA also believes 
that reliability of the records is contingent on having processes and 
procedures in place that restrict access to and protect the integrity 
of the data. To this end, FDA is proposing to require in Sec.  
205.27(c) that wholesale distributors implement written policies and 
procedures to protect the integrity of their records.
    Under proposed Sec.  205.27(d), all records would be retained for a 
period of 3 years, except records related to suspect and illegitimate 
products, prescription drug quality complaints, and destroyed, 
returned, and recalled prescription drugs, which would need to be 
retained for a period of 6 years. Such record retention is necessary to 
ensure compliance and consistent enforcement of the various record 
keeping requirements of sections 582, 583, and 584 of the FD&C Act.
9. Inspections
    Section 583(b)(6) of the FD&C Act directs FDA to establish national 
standards for a mandatory physical inspection of any facility used in 
wholesale distribution within a reasonable time frame from the initial 
application (section 583(b)(6) of the FD&C Act). FDA believes that it 
is imperative for the mandatory physical inspection to take place prior 
to issuing an initial license to a wholesale distributor to ensure that 
only those wholesale distributors who have the ability to properly 
store, handle, and distribute prescription drugs in accordance with the 
national standards are licensed. Accordingly, in proposed Sec.  
205.28(a), wholesale distributors are required to undergo a physical 
inspection before the licensing authority issues the initial license. 
As used in subpart C, licensing authority means the State licensing 
authority or FDA. To satisfy the inspection requirement, section 583(c) 
of the FD&C Act permits the licensing authority to conduct the 
inspection or accept an inspection by the State in which the facility 
is located or by a third-party accreditation or inspection service 
approved by the licensing authority in accordance with these standards. 
FDA has codified this provision at proposed Sec.  205.28(a)(1) and (2). 
Additionally, FDA believes that section 583(c) can be applied to State 
licensure of non-resident wholesale distributors to ship into a State 
and proposes that a State into which a drug is distributed may use the 
same methods to satisfy the inspection requirement for non-resident 
wholesale distributors (see proposed Sec.  205.28(a)(1)(iii)). FDA 
believes that requiring a satisfactory inspection prior to licensure 
will ensure that only wholesale distributors with appropriate 
facilities and equipment for storing and distributing prescription 
drugs are granted a license to participate in the supply chain.
    FDA is proposing to require that the physical inspection of 
wholesale distributor facilities include the facility itself, processes 
related to all wholesale distribution activities, and paper and 
electronically stored records; that wholesale distributors permit 
inspections at reasonable times; and that the licensing authority 
conduct its inspection in a reasonable manner (see proposed Sec.  
205.28(b) and (c)). FDA believes that authentication of records during 
an inspection is important to maintain confidence in documentation 
preserved by the wholesale distributor, which may contain information 
about nonsaleable prescription drugs or be disseminated to other 
trading partners.
    FDA proposes that a wholesale distributor be required to make 
records available during inspections, including records that are held 
offsite in the normal course of business. The failure of a wholesale 
distributor to produce

[[Page 6728]]

records in a timely manner during an inspection can significantly 
affect the licensing authority's ability to complete the inspection. 
Therefore, FDA is proposing that a wholesale distributor be required to 
provide offsite records within 2 business days of a request for such 
records by a State or Federal official, or sooner if necessitated by 
the duration of the inspection (see proposed Sec.  205.28(b)). FDA also 
proposes the requirement that a wholesale distributor cooperate with 
the State or Federal licensing authority, or the AO conducting the 
inspection, at reasonable times, within reasonable limits, and in a 
reasonable manner to achieve the objective of the inspection (see 
proposed Sec.  205.28(c)).
    Finally, FDA believes routine inspections are an essential tool to 
ensure that wholesale distributors continue to comply with the national 
standards after obtaining their initial wholesale distributor license 
and move to renew that license. Accordingly, FDA is proposing to 
require that wholesale distributors undergo routine inspections at 
least once every 3 years (see proposed Sec.  205.28(d)). In developing 
the inspection timeframes, FDA sought to balance the risk to the supply 
chain with FDA's and State licensing authorities' resource constraints. 
These routine inspections allow FDA or the licensing authority to 
ensure that wholesale distributors maintain the levels of quality 
storage and maintenance of prescription drugs at their facilities 
expected by FDA to safeguard the supply chain.
10. Annual and Other Reporting to FDA
    Under DSCSA, wholesale distributors must report certain information 
to FDA as part of the requirement to be considered an authorized 
trading partner (sections 581(2)(B) and 503(e)(2)(A) of the FD&C Act). 
The annual reporting requirements for wholesale distributors went into 
effect on January 1, 2015, and FDA has published draft industry 
guidance that communicates draft Agency expectations for annual 
reporting while these regulations are being developed (79 FR 73083, 
December 9, 2014, and 82 FR 3004, January 10, 2017). Proposed Sec.  
205.29 clarifies the statutorily prescribed annual reporting 
requirements.
    The DSCSA requires that any wholesale distributor who owns or 
operates an establishment that engages in wholesale distribution report 
to FDA on an annual basis: (1) The State in which the wholesale 
distributor is licensed; (2) the identification number of its wholesale 
distributor's license; (3) the name, address, and contact information 
for the wholesale distributor; (4) all trade names under which the 
licensed wholesale distributor conducts business; and (5) any 
significant disciplinary actions taken against the wholesale 
distributor (section 503(e)(2)(A) of the FD&C Act).
    FDA is proposing to require that wholesale distributors use an 
electronic reporting system provided by FDA (see proposed Sec.  
205.29(a)). This electronic system will increase efficiency by 
providing uniformity in report content and format, making the 
information easier to process for regularly updating the public 
database (section 503(e)(2)(B) of the FD&C Act). In addition, FDA 
believes having the license status of wholesale distributors in one 
publicly available database would be helpful for FDA, trading partners, 
and other stakeholders in determining whether wholesale distributors 
are authorized, as defined in section 581(2)(B) of the FD&C Act. 
Reporting information for each wholesale distributor in FDA's 
electronic system during the reporting period is integral to FDA's 
ability to provide oversight, as wholesale distributors are prohibited 
from distributing product without a license.
    FDA proposes that the annual reporting schedule will require all 
wholesale distributors to report each calendar year between January 1st 
and March 31st, although an entity may update information at any time 
(see proposed Sec.  205.29(b)). For example, if a wholesale distributor 
chooses to update a license on December 15, 2019, that wholesale 
distributor will still have to report during the January 1, 2020, 
through March 31, 2020, annual reporting period.
    The specific information that wholesale distributors must 
electronically report to FDA is set forth in proposed Sec.  205.29(c). 
The DSCSA requires licensed entities to report to FDA each State by 
which they are licensed and each license number (section 
503(e)(2)(A)(i)(I) of the FD&C Act). FDA is proposing that the 
wholesale distributor also submit the expiration date of its State 
licenses (see proposed Sec.  205.29(c)). The submission of the 
wholesale distributor's license expiration date is paramount to FDA's 
ability to establish and maintain a public database identifying each 
authorized wholesale distributor as required by section 503(e)(2)(B) of 
the FD&C Act. If a wholesale distributor's license expires, it is no 
longer an authorized trading partner, and FDA will remove it from the 
public database until the license is renewed or a new license issued. 
Similarly, FDA is proposing that a wholesale distributor be required to 
report to FDA within 30 calendar days that it has gone out of business 
or voluntarily withdrawn a wholesale distributor's license from a State 
(see proposed Sec.  205.30(e)). Again, FDA believes that requiring a 
wholesale distributor to report this information about the status of 
its license is essential for FDA to comply with the requirements under 
section 503(e)(2)(B) of the FD&C Act and to ensure that the database is 
accurate and helpful for the States and trading partners.
    The DSCSA also requires that wholesale distributors report the 
name, address, and contact information for each facility at which, and 
all the trade names under which, the wholesale distributor conducts 
business (section 503(e)(2)(A)(i)(II) of the FD&C Act). In implementing 
this requirement, FDA is proposing to require the wholesale distributor 
to provide the company name that is identical to the official company 
name appearing on the license, along with the full business address 
that is associated with the State or Federal license (see proposed 
Sec.  205.29(c)(2)).
    Additionally, FDA is requesting that wholesale distributors submit 
a UFI that corresponds with the facility name and facility address. The 
UFI for a wholesale distributor's facility is useful to FDA in 
identifying and confirming certain business information. A wholesale 
distributor should obtain a separate UFI for each physical address it 
reports. FDA has published guidance on annual reporting that can assist 
wholesale distributors if they require additional information regarding 
the UFI reporting recommendation.
    In addition, FDA believes the wholesale distributor's contact 
information should include someone familiar with the daily operations 
of the wholesale distributor's facility and who has the authority to 
act on inquiries to ensure efficient processing of inquiries and 
minimize the impact inquiries may have on the facility's daily 
operations. Therefore, wholesale distributors must submit the contact 
information of the facility manager or designated representative, 
including that individual's name, telephone number, and email address, 
with its annual reporting requirements pursuant to section 
503(e)(2)(A)(i)(II) of the FD&C Act.
    DSCSA requires a wholesale distributor to report to FDA any 
significant disciplinary action taken by a State or Federal government 
against the wholesale distributor (section 503(e)(2) of FD&C Act). A 
significant disciplinary action is defined in the

[[Page 6729]]

proposed regulation, in relevant part, as any action by a State or 
Federal licensing authority that limits or prevents a wholesale 
distributor from distributing or facilitating the distribution of 
prescription drugs (see proposed Sec.  205.3(l)). FDA proposes that 
wholesale distributors report during the reporting period to FDA all 
significant disciplinary actions that occurred during the preceding 12-
month period (see proposed Sec.  205.29(d)(1)). After the reporting 
period, FDA proposes that within 30 calendar days after a significant 
disciplinary action is imposed or taken by a State or Federal 
government, wholesale distributors report the type of disciplinary 
action, the date the action was taken, and the State where the 
disciplinary action occurred, as well as submit any documents 
associated with the disciplinary action, including a final ruling by 
the relevant State or Federal agency or board or a consent decree (see 
proposed Sec.  205.29(c)(4) and (d)). While wholesale distributors do 
not ordinarily have to report DEA registration numbers or State 
controlled substances licenses to FDA for annual reporting purposes, 
FDA suggests that such information be provided as part of its report 
under section 503(e)(2)(A)(ii) of the FD&C Act when there is a 
significant disciplinary action issued by the DEA or the State 
controlled substances licensing authority that would limit the ability 
of the wholesale distributor to distribute controlled drug substances. 
In such a situation, information about the DEA registration or State 
controlled substance license should be reported since the disciplinary 
action is reported under that specific license or registration.
11. Licensure Denial, Suspension, Reinstatement and Revocation--Notice 
and Opportunity To Request a Hearing
    The standards for licensure denial are set forth in proposed Sec.  
205.30. Proposed Sec.  205.30(a)(1) lists 10 circumstances under which 
a licensing authority will be required to deny a wholesale 
distributor's request for licensure or licensure renewal. FDA believes 
that these reasons requiring denial will ensure wholesale distributors 
focus on good storage practices outlined by FDA and are necessary to 
protect the integrity of the products in the pharmaceutical 
distribution supply chain. Wholesale distributors should seek to ensure 
that these reasons outlined in proposed Sec.  205.30(a)(1) are 
addressed when the wholesale distributor files for licensure to avoid 
denial or delays of their application.
    Proposed Sec.  205.30(a)(2) through (5) details the process 
afforded to wholesale distributors whose applications for licensure 
have been denied. FDA is proposing to give applicants the opportunity 
to provide additional information for reconsideration of the denial. If 
the licensing authority denies a wholesale distributor's request for 
licensure after reconsideration, the wholesale distributor will receive 
a notice of opportunity to request for hearing under existing FDA 
hearing procedure. FDA requests comment regarding the reconsideration 
and appeal process outlined in this regulation for wholesale 
distributors whose applications for licensure have been denied.
    The proposed standards for suspending a wholesale distributor's 
license are set forth in Sec.  205.30(b) and (c). A suspended wholesale 
distributor must cease all receipt and distribution of prescription 
drugs until their license is re-instated. The proposed standards for 
suspension are based on the severity of risk posed to the public 
health. For example, under proposed Sec.  205.30(b), a wholesale 
distributor's license may be suspended only after the wholesale 
distributor receives a notice of opportunity for hearing. If the 
licensing authority has a reasonable belief that the wholesale 
distributor is not in compliance with licensure requirements and such 
noncompliance threatens the quality of the product or threatens public 
safety, the licensing authority is required to notify the wholesale 
distributor in writing of the intent to suspend its license. A 
wholesale distributor will have 30 days upon the date of the notice of 
intent to suspend a license to provide additional information to the 
licensing authority so it may reconsider its decision to suspend the 
wholesale distributor license. If reconsideration is not sought, or if 
reconsideration is denied, the licensing authority will inform the 
wholesale distributor in writing of its formal intent to proceed with 
license suspension. The notice will contain a statement informing the 
wholesale distributor that it has an opportunity to request a hearing 
on the question of whether there are sufficient grounds for suspension. 
The wholesale distributor will have 10 days after the date of the 
notice to inform the licensing authority of its intent to request a 
hearing; otherwise the opportunity for a hearing will be waived and the 
license suspended. FDA requests comment regarding this reconsideration 
and appeal process.
    Proposed Sec.  205.30(c) allows for suspension prior to notice and 
opportunity for a hearing and for suspension to be effective 
immediately if the wholesale distributor's noncompliance poses an 
imminent threat to public safety. For example, if a wholesale 
distributor is distributing illegitimate product, and once made aware, 
does not take corrective actions to protect the public from the threat 
of these products, its license could be suspended immediately. Another 
example would be a scenario where the conditions under which drugs are 
held cause the product to be illegitimate and the wholesale distributor 
refuses to correct the conditions or continues to ship these 
illegitimate products. Under the proposed regulation, if the licensing 
authority proceeds with suspension in such a situation, the licensing 
authority will inform the wholesale distributor in writing that its 
license is suspended. The notice will also contain a statement 
informing the wholesale distributor that it may request a hearing and 
that hearing, if granted, will be afforded within 10 days of the 
receipt of the wholesale distributor's request for hearing. The 
wholesale distributor has 10 days from the date on the notice of 
suspension to request a hearing; otherwise its opportunity for a 
hearing will be waived. FDA believes that this limits the amount of 
time a wholesale distributor's license would be suspended while 
providing a reasonable amount of time both for the wholesale 
distributor to review a notice of suspension and collect the necessary 
information to demonstrate that its license should not be suspended, 
and for FDA to consider the hearing request, and to schedule and 
prepare for a hearing, if the hearing request is granted. FDA believes 
immediate suspension of a wholesale distributor's license is crucial in 
cases where continued operation of the wholesale distributor presents 
an imminent threat to public safety and the pharmaceutical supply 
chain.
    Under proposed Sec.  205.30(d), a wholesale distributor's suspended 
license may be reinstated if the wholesale distributor can demonstrate 
to the licensing authority that it is in compliance with this proposed 
regulation.
    Under the proposed rule the process outlined at Sec.  10.75 is the 
default for appeals related to a denied application for a wholesale 
distributor license, and the hearing process outlined at 21 CFR part 16 
is the default for appeals related to a suspended or revoked wholesale 
distributor license. However, the wholesale distributor may request any 
of the procedures contained in 21 CFR parts 10 through 16. FDA believes 
that

[[Page 6730]]

this proposed approach is consistent with current practice and suggests 
that States develop comparable processes.
    The standards for revoking a wholesale distributor license are set 
forth in proposed Sec.  205.30(e). The licensing authority will revoke 
a license if it finds that a wholesale distributor whose license has 
been suspended is unable or refuses to comply with the licensing 
requirements. The requirements governing the revocation of a wholesale 
distributor license are set forth in proposed Sec.  205.30(e)(2) 
through (4) and mirror the process outlined in Sec.  205.30(b)(2) 
through (7), with one exception: When the licensing authority informs 
the wholesale distributor of its intent to revoke a license, the 
wholesale distributor is given no opportunity for reconsideration since 
it already had an opportunity to rectify deficiencies while its license 
was suspended.
    In addition, where a wholesale distributor fails to timely renew 
its application, the license will be considered expired and the 
wholesale distributor will need to submit an application for new 
licensure if it seeks to resume wholesale distribution activities, 
because the licensing authority may be unable to confirm that the 
wholesale distributor continues to meet all necessary licensure 
requirements (see proposed Sec.  205.30(f)). If a wholesale 
distributor's license expires, it must cease receipt and distribution 
of prescription drugs until their license has been re-instated.
    FDA is also proposing that the licensing authority will terminate a 
wholesale distributor's license upon request from the wholesale 
distributor when the request includes a notice of the wholesale 
distributor's intent to discontinue its activities and a waiver of an 
opportunity for a hearing. The wholesale distributor will be required 
to apply for a new license should it decide to resume wholesale 
distribution activities (see proposed Sec.  205.30(g)).

F. Approved Organizations for Wholesale Distributors

1. Approval of Outside Organizations and Utilization of Such 
Organizations in the Licensure Process
    The FD&C Act, as amended by DSCSA, allows the Federal or State 
licensing authority to accept inspections of wholesale distributors 
conducted by third-party accreditation or inspection services they have 
approved to be part of the licensure process (section 583(c) of FD&C 
Act). Subpart D of the proposed rules defines the scope of work these 
approved organizations (AOs) would be tasked with performing, as well 
as the standards an AO must meet to become approved by FDA. 
Additionally, this subpart will explain the circumstances in which an 
inspection conducted by an AO may be used, what activities the AOs have 
the authority to conduct and are expected to conduct, and the 
qualifications that each third-party organization must possess to 
become approved by FDA. FDA suggests that States that choose to rely on 
AOs to conduct inspections have in place the same or similar 
qualifications and processes for approved organizations to conduct 
those inspections and for decisions affecting the approval status of 
those organizations.
    FDA proposes that an AO must complete an inspection no more than 90 
days after receiving notice from the licensing authority to conduct an 
inspection (see proposed Sec.  205.31(b)). FDA believes this allows AOs 
sufficient time to perform the work with which they are tasked while 
also ensuring that the wholesale distributor's activities are not 
significantly delayed or otherwise impacted due to delays in the 
inspection process. Upon completion of the inspection, the AO would 
then provide FDA with a report based on the inspection within 7 days 
(see proposed Sec.  205.31(b)(2) and (3)), with copy of the report to 
the wholesale distributor facility (see proposed Sec.  205.31(b)(3)). 
Using the report submitted by the AO, FDA makes the final determination 
as to whether a wholesale distributor facility should be issued a 
license.
    It is important that FDA be able to verify an AO's continued 
compliance with the requirements of the proposed regulation. Therefore, 
to become an AO and keep its approval, FDA is proposing to require that 
an AO maintain certain records for a period of at least 5 years and 
make these records readily available to FDA upon request (see proposed 
Sec.  205.31(c)). In addition, to ensure public safety, FDA is 
proposing to require that AOs report certain observations at wholesale 
distributor facilities to FDA immediately (see proposed Sec.  
205.31(c)(4)). The general qualifications for approval are set out in 
proposed Sec.  205.32.
    To become and remain approved, FDA is proposing to require that an 
organization, and those employed by the organization, abide by certain 
guidelines intended to secure against conflicts of interest, promote 
professional business practices, and protect non-public information 
(see proposed Sec.  205.32(a)).
    FDA is proposing to allow AOs to hire outside contractors to 
conduct inspections. Under FDA's proposed regulation, AOs who decide to 
use outside contractors must ensure that they effectively carry out the 
inspection in a manner consistent with this proposed regulation to 
protect public health, conform to conflict of interest provisions, and 
properly protect all non-public information (see proposed Sec.  
205.32(b)). For an AO to maintain approval, FDA proposes to require 
that the AO ensure contractors abide by all applicable confidentiality 
agreements, the AO has policies and procedures in place to ensure the 
contractors abide by these proposed standards, and the contractors have 
the necessary training and expertise to carry out inspections of 
wholesale distributor facilities (see proposed Sec.  205.32(b)(1)).
    Before a contractor hired by an AO may perform an inspection of a 
wholesale distributor, the wholesale distributor must have entered into 
an agreement with the AO giving the AO permission to share with 
contractors the wholesale distributor's confidential commercial 
information (see proposed Sec.  205.32(b)(2)). If such consent is not 
provided by the wholesale distributor, the AO will perform the 
inspection itself, without the use of contractors. FDA believes that 
this approach is reasonable given that it is the AO's decision to work 
with contractors and, under this proposed regulation, the ultimate 
responsibility for the inspection and the protection of the wholesale 
distributor's information rests with the AO.
    In addition, FDA proposes that AOs must submit to FDA a list of the 
contractors used by the organization and must certify that such 
contractors comply with the applicable regulations (see proposed Sec.  
205.32(b)(3)). Finally, to ensure that the standards set forth in this 
subpart are followed, FDA proposes to require that the AOs remain 
responsible for all the work performed by outside contractors (see 
proposed Sec.  205.32(b)).
    FDA proposes that to maintain their approved status, AOs must 
prohibit contractors from subcontracting their inspection duties (see 
proposed Sec.  205.32(b)(1)(ii)). Limiting the ability of contactors to 
further delegate their responsibility ensures that FDA will have 
accurate information about who is conducting inspections, that those 
responsible for the inspections have the necessary qualifications, and 
that their conduct is governed by this proposed regulation.
    The proposed process that FDA will use to approve organizations, 
including the application process, as well as the process for 
suspending or revoking an organization's approval, are set forth in 
proposed Sec.  205.33. FDA is proposing that organizations seeking 
approval by

[[Page 6731]]

FDA must electronically submit to FDA an application demonstrating the 
organization's ability to assess compliance with all wholesale 
distributor requirements detailed in proposed part 205 (see proposed 
Sec.  205.33(a) and (b)), and employees must complete the necessary 
training as directed by FDA (see proposed Sec.  205.33(c)). To verify 
information contained in the application and ensure compliance with the 
proposed regulation, FDA proposes that, before an AO may conduct its 
first inspection, a newly approved organization must be audited by FDA 
(see proposed Sec.  205.33(d)). A new approval will be valid for 5 
years (see proposed Sec.  205.33(e)).
    If an organization's request for approval is denied, the 
organization may submit a request for reconsideration under Sec.  10.75 
(see proposed Sec.  205.33(f)). In addition, FDA proposes that an AO 
may have its approval suspended if it does not maintain the standards 
outlined in this section (see proposed Sec.  205.33(g)). A suspended AO 
must cease all inspections of wholesale distributors. A suspended AO 
must notify any wholesale distributors with a pending inspection to be 
performed by the AO of the AO's suspension within 7 calendar days (see 
proposed Sec.  205.33(g)(5). While most suspensions will happen only 
after notice and opportunity to request a hearing, under the proposed 
regulations, FDA reserves the ability to suspend approval prior to a 
hearing if there is a reasonable probability that the organization's 
noncompliance will cause imminent and serious adverse health 
consequences or death to humans (see proposed Sec.  205.33(h)).
    Furthermore, FDA proposes that a suspended approval can be 
reinstated if the issue is resolved within 1 year from the date of 
suspension (see proposed Sec.  205.33(i)), though it may be revoked if 
the organization fails to rectify the situation that resulted in the 
suspension (see proposed Sec.  205.33(j)). FDA believes that 1 year 
provides the AO enough time to remedy most situations. An AO's approval 
may also be reinstated on a conditional basis. If the AO is 
conditionally reinstated, they will enter a three-year probationary 
period, during which if any material deficiencies arise, their approval 
will be subject to immediate revocation (see proposed Sec.  
205.33(i)(2)).
    FDA also proposes to permit an AO to voluntarily withdraw its 
approval or otherwise cease operations as an AO under this part, but it 
must inform FDA of any facilities with pending inspections (see 
proposed Sec.  205.33(l)). To further ensure that pending inspections 
are not overlooked, under FDA's proposed regulation, an AO whose 
approval has been suspended or revoked has the responsibility to report 
this information to those wholesale distributors that have pending 
inspections (see proposed Sec.  205.33(m)); this will stop the clock on 
the 90-day licensure review while the wholesale distributor applies for 
inspection from another AO or FDA. Also, to ensure wholesale 
distributors continue to comply with the provisions of this part, and 
to ensure that AOs remain able to assess compliance with the wholesale 
distributor requirements, an AO must inform FDA of any changes to 
information that was submitted as part of its application for approval 
(see proposed Sec.  205.33(n)(1)). Since the approval of an 
organization is nontransferable, changes in ownership require an AO to 
submit a new application to FDA (see proposed Sec.  205.33(n)(2)). 
Finally, as an additional assurance that an AO continues to comply with 
the provisions of this part, FDA proposes to require that AOs remain 
subject to periodic audits by FDA (see proposed Sec.  205.33(o)).

VI. Proposed Effective/Compliance Dates

    Section 584 of the FD&C Act states that the national licensing 
standards for 3PLs established by regulation take effect 1 year after 
the date such final regulation is published (section 584(d)(1) and (3) 
of the FD&C Act), and that national licensing standards for wholesale 
distributors established by regulation take effect 2 years after the 
date such final regulation is published (section 583(a) and (e)(3) of 
the FD&C Act). For several reasons, FDA does not intend to enforce the 
3PL requirements until 2 years after the final regulation is published.
    FDA recognizes that 1 year may be insufficient time for States to 
implement 3PL licensure programs, should they decide to implement such 
programs, and for 3PLs to apply for licensure under these programs. 
Setting up a state licensure program may require additional time. This 
is especially true in States that will require State legislative action 
to implement a licensure program, with some State legislatures only 
meeting biennially.
    As the DSCSA states that the national standards for prescription 
drug wholesale distributors established by regulation pursuant to 
section 583 of the FD&C Act will take effect 2 years after the date 
such final regulation is published (section 583(a) and (e) of the FD&C 
Act), the national standards for licensing wholesale distributors in 
subpart C will be effective 2 years after the date the final rule is 
published.
    Although the DSCSA states that the national licensing standards for 
3PLs established by regulation pursuant to section 584 of the FD&C Act 
will take effect one year after the date such final regulation is 
published (section 584(d)(1) and (3) of the FD&C Act), as noted, FDA 
does not intend to enforce requirements with respect to the national 
standards for licensure of 3PLs until 2 years after the regulation is 
finalized, in order to provide States with the opportunity to establish 
or modify their licensure programs in accordance with the new standards 
and time for 3PLs to apply and obtain a new license. For 1 year after 
the effective date of the final regulation, FDA also does not intend to 
enforce the requirements of section 582(b)(3), (c)(3), (d)(3), and 
(e)(3) of the FD&C Act with respect to a manufacturer, wholesale 
distributor, dispenser, or repackager who has as a trading partner a 
3PL that is not licensed, unless the 3PL is not licensed because the 
Secretary or a state licensing body has made a finding that the 3PL 
does not utilize good handling and distribution practices and the 
Secretary has published notice thereof.

VII. Preliminary Economic Analysis of Impacts

    We have examined the impacts of the proposed rule under Executive 
Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 
U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 
104-4). Executive Orders 12866 and 13563 direct us to assess all costs 
and benefits of available regulatory alternatives and, when regulation 
is necessary, to select regulatory approaches that maximize net 
benefits (including potential economic, environmental, public health 
and safety, and other advantages; distributive impacts; and equity). We 
believe that this proposed rule is a significant regulatory action as 
defined by Executive Order 12866.
    The Regulatory Flexibility Act requires us to analyze regulatory 
options that would minimize any significant impact of a rule on small 
entities. Because the proposed rule could impose significant, although 
uncertain, new economic burdens on small entities, we find that the 
proposed rule will have a significant economic impact on a substantial 
number of small entities.
    The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires 
us to prepare a written statement, which includes an assessment of 
anticipated costs and benefits, before proposing

[[Page 6732]]

``any rule that includes any Federal mandate that may result in the 
expenditure by State, local, and tribal governments, in the aggregate, 
or by the private sector, of $100,000,000 or more (adjusted annually 
for inflation) in any one year.'' The current threshold after 
adjustment for inflation is $158 million, using the most current (2020) 
Implicit Price Deflator for the Gross Domestic Product. This proposed 
rule would not result in an expenditure in any year that meets or 
exceeds this amount.
    In this rulemaking, we propose new national standards for the 
licensing of prescription drug wholesale distributors and third-party 
logistics providers as directed under the Drug Supply Chain Security 
Act, Title II of the Drug Quality and Security Act. If finalized, the 
rule would also establish a Federal licensing system for wholesale drug 
distributors and third-party logistics providers to use in the absence 
of a state licensure program that is consistent with the proposed 
national standards.
    This rulemaking is being published in conjunction with the proposed 
rule entitled ``Certain Requirements Regarding Prescription Drug 
Marketing'' (or part 203), published elsewhere in this issue of the 
Federal Register. We include the benefits and costs of part 203 in this 
economic analysis and, unless otherwise specified, references to the 
``proposed rule'' in this analysis encompass both proposed rules.
    We summarize the benefits and costs of the proposed rule in table 
1. The standards for prescription drug wholesale distribution in the 
proposed rule would result in benefits to consumers and benefits to 
distributors from reducing the diversion of prescription drugs. Other 
monetized benefits include cost savings from reducing the frequency and 
quantity of licensure applications and cost savings from reducing state 
licensing standards in some states. We estimate that the annualized 
benefits over 10 years would range from $1.25 million to $31.50 million 
at a 7 percent discount rate, with a primary estimate of $10.66 
million. We estimate that the annualized benefits would range from 
$1.26 million to $32.18 million at a 3 percent discount rate, with a 
primary estimate of $10.89 million.
    We also expect that the proposed rule, if finalized, would impose 
costs on wholesale drug distributors, third-party logistics providers, 
states, approved organizations, and the Food and Drug Administration 
(FDA). Costs to wholesale drug distributors and third-party logistics 
providers include costs of learning about the rule, reporting to FDA, 
undergoing routine inspections, writing and revising standard operating 
procedures, and conducting background checks. Wholesale-drug 
distributors would also incur costs to furnish surety bonds to their 
state licensing authority to obtain or renew their licenses.
    Costs to states include the time spent reading and understanding 
the rule, passing or revising the laws and regulations governing their 
licensure programs, and inspecting WDD and 3PL facilities. Approved 
organizations would incur legal, application, and training costs, as 
well as costs to inspect WDD and 3PL facilities. FDA costs include the 
costs to establish and operate a reporting database and a licensure 
program for wholesale drug distributors and third-party logistics 
providers and the costs to establish and operate an approval program 
for approved organizations.
    We estimate that the annualized costs over 10 years would range 
from $13.21 million to $20.63 million at a 7 percent discount rate, 
with a primary estimate of $16.92 million. We estimate that the 
annualized costs over 10 years at a 3 percent discount rate would range 
from $12.83 million to $20.10 million, with a primary estimate of 
$16.47 million.

                                  Table 1--Summary of Benefits, Costs, and Distributional Effects of the Proposed Rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Units
                                                                           ------------------------------------
               Category                   Primary       Low        High                               Period                      Notes
                                         estimate    estimate    estimate      Year      Discount     covered
                                                                              dollars    rate (%)     (years)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits:
    Annualized Monetized ($ millions/       $10.66       $1.25      $31.50        2020           7          10  There is a high degree of uncertainty in
     year).                                  10.89        1.26       32.18        2020           3          10   the magnitude of benefits.
    Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
    Annualized Monetized ($ millions/        16.92       13.21       20.63        2020           7          10
     year).                                  16.47       12.83       20.10        2020           3          10
    Qualitative.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transfers:
    Federal Annualized Monetized ($           0.12        0.09        0.14        2020           7          10
     millions/year).                          0.11        0.08        0.14        2020           3          10
                                       -----------------------------------------------------------------------------------------------------------------
                                        From: States
                                        To: Firms
                                       -----------------------------------------------------------------------------------------------------------------
    Other Annualized Monetized ($       ..........  ..........  ..........  ..........  ..........  ..........
     millions/year).
                                       -----------------------------------------------------------------------------------------------------------------
                                        From:
                                        To:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Effects:
    State, Local, or Tribal Government: Annualized net costs to states over 10 years ranging from $0.62 million to $1.44 million at a 7 percent discount
     and from $0.58 million to $1.38 million at a 3 percent discount rate..
    Small Business: Quantified effects of more than 1 percent of average annual revenues for small 3PL firms. Unquantified effects are uncertain........
    Wages: No estimated effect..........................................................................................................................
    Growth: No estimated effect.........................................................................................................................
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We have developed a comprehensive Preliminary Economic Analysis of 
Impacts (PRIA) that assesses the impacts of the proposed rule. The full 
preliminary analysis of economic impacts is available in the docket for 
this proposed rule (Ref 18) and at https://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm.

[[Page 6733]]

VIII. Analysis of Environmental Impacts

    FDA has carefully considered the potential environmental effects of 
this action and has concluded, under 21 CFR 25.30(h), that this action 
is of a type that does not individually or cumulatively have a 
significant effect on the human environment.

IX. Paperwork Reduction Act of 1995

    This proposed rule contains information collection provisions that 
are subject to review by the Office of Management and Budget (OMB) 
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). A 
description of these provisions is given in the Description section of 
this document with an estimate of the annual reporting, recordkeeping, 
and third-party disclosure burden. Included in the estimate is the time 
for reviewing instructions, searching existing data sources, gathering 
and maintaining the data needed, and completing and reviewing each 
collection of information.
    FDA invites comments on these topics: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
FDA's functions, including whether the information will have practical 
utility; (2) the accuracy of FDA's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) ways 
to minimize the burden of the collection of information on respondents, 
including through the use of automated collection techniques, when 
appropriate, and other forms of information technology.
    Title: Requirements to Obtain a License to Distribute Drugs, Annual 
Reporting and Recordkeeping for Procedures, for Third-Party Logistics 
Providers and Prescription Drug Wholesale Distributors to Obtain a 
License to Distribute Drugs; 21 CFR part 205; OMB Control Number 0910-
0251--Reinstatement
    Description: The proposed rule would establish standards, terms, 
and conditions for the licensing of 3PLs and prescription drug 
wholesale distributors by State or Federal licensing authorities, 
including process for the revocation, reissuance, and renewal of such 
licenses. Sections 584 and 583 of the FD&C Act (21 U.S.C. 360eee-3, 
360eee-2)) as added by the DSCSA (Title II of Pub. L. 113-54) requires 
FDA to issue regulations on national standards for the licensing of 
3PLs and wholesale distributors. Accordingly, FDA is proposing 
requirements for licensing of wholesale distributors and third-party 
logistics providers. The proposed rule outlines these requirements, 
including information collection provisions, that 3PLs and wholesale 
distributors must meet to obtain a license. The licensing authority is 
the State, from which the 3PLs distribute drug or the State from which 
wholesale distributors distribute drug. However, if a State does not 
establish the licensure programs for 3PLs or wholesale distributors 
consistent with these regulations, FDA will issue the licenses to 3PLs 
or wholesale distributors in that State. In addition, States may 
require that a 3PL or a wholesale distributor obtain a license to ship 
drugs into that State. The FD&C Act does not require that States issue 
these types of licenses. However, if a State chooses to implement such 
a licensure requirement, the State must ensure that it is consistent 
with these regulations, and any wholesale distributor or 3PL wishing to 
ship products into that State must have a license.
    Proposed part 205, subpart A, would set forth the national 
licensing standards for State and Federal licenses issued to 3PLs 
pursuant to section 584 of the FD&C Act (21 U.S.C. 360eee-3). Proposed 
part 205, subpart C, would set forth the national licensing standards 
for State and Federal licenses issued to wholesale distributors 
pursuant to sections 503(e) and 583 of the FD&C Act (21 U.S.C. 353(e) 
and 21 U.S.C. 360eee-2)) and replaces the existing regulations in 
proposed part 205 that outlined guidelines for State licensing of 
wholesale distributors that were developed under the Prescription Drug 
Marketing Act of 1987 (Pub. L. 100-293).
    In addition, the FD&C Act, as amended by DSCSA, allows FDA to 
approve ``third party accreditation'' entities to evaluate the 
qualifications of 3PLs for licensure or inspect wholesale distributors 
facilities on behalf of FDA. These organizations are referred to in 
this proposed rule as approved organizations or ``AOs.'' The 
application to become an AO is the same whether the AO will be 
evaluating the qualifications of 3PLs for licensure, inspecting 
wholesale distributors facilities, or both. Subparts B and D of the 
proposed rule outline the qualifications for AOs to perform licensure 
reviews/inspections for 3PL facilities and inspections of wholesale 
distributors respectively.
    Description of Respondents: Respondents to the information 
collection are third-party logistics providers and wholesale 
distributors in any State and any entity engaging in wholesale 
distribution of prescription drugs in any State. We are proposing that 
these respondents submit applications for licensure and maintain 
records of procedures and documents pertaining to licensure review, 
inspections, policies, and training.
    The DSCSA establishes 3PLs as members of the drug supply chain, 
which are distinct from wholesale drug distributors, and specifically 
precludes States from regulating 3PLs as wholesale distributors 
(section 585(b)(2) of the FD&C Act (21 U.S.C. 360eee-4(b)(2)). FDA is 
required by section 584 of the FD&C Act (21 U.S.C. 360eee-3) to 
establish national standards for the licensure of 3PLs and is proposing 
those standards in part 205, subpart A. When the proposed rule is 
finalized, we will require that each facility of an entity that meets 
the definition of a 3PL in section 581(22) of the FD&C Act (21 U.S.C. 
360eee(22)) be licensed by the State or FDA in accordance with the 
standards articulated in proposed part 205, subpart A.
    Proposed part 205, subpart C, of the proposed rule, Sec. Sec.  
205.20 through 205.30, establishes the national standards for the 
licensure of wholesale drug distributors. When the proposed rule is 
finalized, we will require that each wholesale distributor be licensed 
by the State or FDA in accordance with the standards in proposed part 
205, subpart C.
    Proposed part 205, subpart B (Sec. Sec.  205.17 through 205.19), 
and subpart D (Sec. Sec.  205.31 through 205.33), of the proposed rule 
describe the content requirements, application process, and reporting 
schedules to become an approved organization to conduct licensure 
review/inspections for 3PL facilities or conduct inspections of 
wholesale distributors. Although the work differs among licensure 
review and inspection for 3PLs and wholesale distributors, FDA believes 
that the same entities will apply to conduct licensure reviews and 
inspection of both types of entities. In addition, the submission of an 
application to become an AO is the same in subparts B and D. Because of 
this, we are combining the discussions of AOs for 3PLs and wholesale 
distributors, and the resulting burden estimates.
    The national licensure standards FDA is proposing are intended to 
help ensure that the supply chain remains secure and that those 
finished prescription drug products subject to the DSCSA moving through 
the supply chain are properly stored, handled, and transported. These 
measures are

[[Page 6734]]

intended to help protect U.S. consumers from drugs that may be 
counterfeit, stolen, contaminated, or otherwise harmful. The required 
information collection to comply with the proposed rule is necessary 
for the States or FDA to assess the ability of 3PLs or wholesale 
distributors to properly maintain drug quality and security while the 
drug products are under their possession or control.
    We estimate the burden of the information collection as follows:

                                 Table 3--Estimated Annual Reporting Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Average burden
    Proposed 21 CFR part 205         Number of     responses per   Total annual    per response     Total hours
      section; IC activity          respondents     respondent       responses      (in hours)
----------------------------------------------------------------------------------------------------------------
Subpart A (3PLs):
    Sec.  Sec.   205.5 and                   459               1             459               2             918
     205.6; application and
     process requirements.......
    Sec.   205.7; changes to                   6               1               6               1               6
     licensure..................
    Sec.   205.8; expiry and                 149               1             149               1             149
     renewal of licensure.......
    Sec.   205.9; denials,                    35               1              35               1              35
     suspensions,
     reinstatements, revocations
    Sec.   205.11; personnel                 459               1             459              .5             230
     list.......................
    Sec.   205.15; annual                    459               1             459             .25             115
     reports....................
Subpart B (Approved
 Organizations for 3PLs):
    Sec.   205.17; licensure                   6              15              90               5             450
     review and inspection
     reports of 3PL facilities..
    Sec.   205.19; applications,               3               1               3               2               6
     denials, revocations,
     suspensions, renewals,
     reinstatements for AO
     status.....................
Subpart C (WDD Standards):
    Sec.  Sec.   205.22 and                1,951               1           1,951               2           3,902
     205.23; application and
     process requirements for
     licensure..................
    Sec.   205.24; changes to                 39               1              39               1              39
     WDD information............
    Sec.   205.26; confirmation               25               1              25              .5              13
     of theft or loss of Rx drug
    Sec.  Sec.   205.29 and                   38               1              38               1              38
     205.30; denials,
     suspensions,
     reinstatements, revisions,
     and terminations--requests
     for hearing................
    Sec.   205.29(a)--WDD annual           1,951               1           1,951               1           1,951
     reports....................
Subpart D (Approved
 Organizations for WDDs):
    Sec.  Sec.   205.32 and                    6              31             186               5             930
     205.33; documentation of
     qualifications and
     disclosures to FDA.........
                                 -------------------------------------------------------------------------------
        Total...................  ..............  ..............           5,890  ..............  ..............
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with the information collection.

                               Table 4--Estimated Annual Recordkeeping Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Average burden
    Proposed 21 CFR part 205         Number of     responses per   Total annual    per response     Total hours
      section; IC activity          respondents     respondent       responses      (in hours)
----------------------------------------------------------------------------------------------------------------
Subpart A (3PLs):
    205.4; general requirements              459               1             459              .5             230
     (retrievable records)......
    205.12; written procedures..             459               1             459              21           9,639
    205.13; record and document              459               1             459               1             459
     maintenance................
    205.14; list of trading                  459               1             459               2             918
     partners...................
Subpart B (Approved
 Organizations for 3PLs):
    205.17; licensure review and               6              15              90               2             180
     inspection records.........
    205.19; written procedures,                6               1               6               3              18
     policies, training records.
Subpart C (WDD Standards):
    205.21; surety bond.........           1,951               1           1,951               1           1,951
    205.25; personnel records...           1,951               1           1,951               1           1,951
    205.26; facility records....           1,951               1           1,951               1           1,951
    205.28; inspection records..           1,951               1           1,951               1           1,951
Subpart D (Approved
 Organizations for WDDs):
    205.31; records                            6               1               6               1               6
     demonstrating qualification
     status.....................
                                 -------------------------------------------------------------------------------
        Total...................  ..............  ..............           9,742  ..............          19,254
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with the information collection.

Reporting Burden

    Among the reporting requirements found in proposed part 205 are 
content and format provisions pertaining to issuance, changes, expiry, 
renewal, and annual reports for 3PLs, as well as WDDs, as reflected 
above in table 3. The proposed regulations also prescribe procedural 
steps and reporting schedules for submitting information regarding 
licensure, changes to

[[Page 6735]]

licensure, reinstatement, and annual reporting, including requisite 
reporting timeframes. Consistent with our PRIA, we estimate that 459 
3PL facilities and 1,951 WDDs will become subject to the reporting 
requirements described in proposed part 205, where we ascribe specific 
burden associated with the provisions found in table 3. Because we 
currently lack specific submission data regarding the proposed 
reporting requirements, we rely on our experience with similar 
information collection as the primary basis for our estimates. However, 
we invite specific comment from potential respondents regarding burden 
estimates we ascribe to the reporting elements found in the proposed 
regulations, along with a discussion of the basis for their 
computation.

Recordkeeping Burden

    As set forth in the proposed regulations, 3PLs and WDDs must 
maintain records documenting procedures, management practice, policies, 
training, and personnel, among others. Under proposed Sec.  205.4, all 
records are subject to FDA inspection and must be made available upon 
request in the format prescribed by the proposed regulations. 
Additional specific recordkeeping practice elements are also enumerated 
in the proposed regulations. Consistent with our PRIA, we estimate that 
459 3PLs and 1,951 WDDs will become subject to these requirements, if 
the proposed rule is finalized. These provisions are reflected above in 
table 4, along with an estimated number of annual records and 
recordkeeping hours we attribute to the corresponding activity. As with 
the proposed reporting requirements, we currently lack specific data 
regarding recordkeeping associated with the proposed regulations. We 
invite specific comment from potential respondents regarding burden 
estimates we ascribe to the recordkeeping activities, along with a 
discussion of the basis for their computation.
    To ensure that comments on information collection are received, OMB 
recommends that written comments be submitted through reginfo.gov (see 
ADDRESSES). All comments should be identified with the title of the 
information collection.
    In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3407(d)), we have submitted the information collection provisions of 
this proposed rule to OMB for review. These information collection 
requirements will not be effective until FDA publishes a final rule, 
OMB approves the information collection requirements, and the rule goes 
into effect. FDA will announce OMB approval of these requirements in 
the Federal Register.

X. Federalism

    We have analyzed this proposed rule in accordance with the 
principles set forth in Executive Order 13132, ``Federalism'' (64 FR 
43255, August 10, 1999). This Executive order sets forth principles and 
criteria that agencies must adhere to in formulating and implementing 
policies that have federalism implications, defined in section 1(a) of 
the order as including regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.'' Section 4(a) 
of the Executive order requires agencies to ``construe . . . a Federal 
statute to preempt State law only where the statute contains an express 
preemption provision or there is some other clear evidence that the 
Congress intended preemption of State law, or where the exercise of 
State authority conflicts with the exercise of Federal authority under 
the Federal statute.'' The DSCSA added to the FD&C Act an express 
preemption provision under section 585, which addresses state licensure 
of WDDs and 3PLs in section 585(b)(1).

A. Scope of Preemption

    FDA interprets section 585(b)(1) of the FD&C Act as preempting 
States and localities from establishing or continuing requirements for 
3PL or WDD licensure that are different from the standards and 
requirements applicable under sections 584 and amended 503(e) of the 
FD&C Act. In other words, States and local governments may not 
establish or continue licensure requirements for 3PLs or WDDs unless 
those State requirements are the same as Federal requirements; 
different requirements are preempted.
    As noted above, a draft guidance issued in October 2014 (Ref. 4) 
proposed a different preemption interpretation under which States and 
localities could impose requirements on 3PL and WDD licensure that were 
different from Federal requirements so long as those requirements did 
not fall below the minimum Federal standards. Several stakeholders 
commented that the agency's interpretation of section 585(b)(1) was too 
narrow. Instead, they argued Congress intended to preempt all state 
licensure laws not identical to Federal licensure standards, i.e., that 
Congress wanted the Federal system to provide both a ``floor'' and a 
``ceiling'' when it came to the issue of preemption.
    FDA has reconsidered its earlier proposed interpretation and 
determined that its current interpretation--that the Federal 
requirements will establish both a ``floor'' and a ``ceiling''--is more 
consistent with the language of the statute, Congressional purpose, and 
policy considerations. Section 585(b)(1) provides for the preemption of 
any state requirements that are, among other things, ``inconsistent 
with'' or ``covered by'' Federal requirements--which suggests both a 
floor and a ceiling. Furthermore, the fundamental purpose of the DSCSA 
provisions was to strengthen the security and integrity of the drug 
supply chain through uniform national requirements (Refs 2, 3, 18), 
including with respect to licensure (see e.g., section 583(b)). In 
contrast, under the interpretation proposed in our October 2014 draft 
guidance, 3PLs and WDDs could be required to comply with a patchwork of 
State and local licensure requirements, which would undermine the goal 
of national uniformity and could create barriers to the statute's 
implementation and administrability. That approach would not create the 
intended uniformity in national policy because States and localities 
would not be preempted from establishing unique or disparate 
requirements.
    Accordingly, FDA is withdrawing, as of the date of publication of 
this proposed rule, that portion of the October 2014 draft guidance 
addressing preemption with respect to WDD/3PL licensure.

B. Effective Date of Preemption

    Section 585(b)(1) provides that it is effective ``[b]eginning on 
the date of enactment of the Drug Supply Chain Security Act [November 
27, 2013].'' However, that provision applies only to state requirements 
that are inconsistent with the national standards and requirements 
applicable under sections 584 and 503(e) of the FD&C Act. Those 
national standards will be established by this regulation, once 
finalized and effective. Thus, by its very terms, section 585(b)(1) has 
no current application. Accordingly, State and local licensure 
requirements will be preempted only once this regulation, when 
finalized, takes effect; until such time, current State and local 
licensing of WDDs and 3PLs may continue.
    We believe that this result is dictated by the terms of the 
statute. However, even if the statute were considered ambiguous, this 
interpretation is consistent with the statutory framework and purposes. 
Other provisions added

[[Page 6736]]

by the DSCSA recognized state licensure of WDDs and 3PLs before the 
effective date of this regulation. For example, DSCSA requires both 
WDDs and 3PLs to report their state licensure, beginning January 1, 
2015, for WDDs and November 27, 2014, for 3PLs (see sections 
503(e)(2)(A) and section 584(b)). Because these reporting requirements 
apply during the period between DSCSA's enactment and the effective 
date of Federal licensing standards, they suggest that Congress 
intended to preserve the status quo in terms of permitting state 
licensure during this interim period. Indeed, if state licensing were 
viewed as preempted during this interim period, there could be no valid 
state licensure for 3PLs and WDDs to report, rendering this reporting 
provision meaningless. In addition, section 582(a)(6) expressly 
recognizes state WDD licensure during the period between DSCSA's 
enactment and the effective date of Federal licensure regulations, and 
section 582(a)(7) similarly deems 3PLs to be ``licensed'' during this 
time, including by acknowledging and accommodating state licensure of 
3PLs.
    Further, the WDD licensure rules take effect two years after 
publication of the final rule, per section 583(e)(3), and the 3PL rules 
take effect one year after publication of the final rule, per section 
584(d)(3)(C). Thus, despite the reference to DSCSA's enactment date in 
section 585(b)(1), the statute also expressly provides that the Federal 
licensure standards will not be effective until several years after 
DSCSA's enactment.
    The interpretation is also supported by reading the provisions of a 
statute as an integrated whole, consistent with its fundamental 
purpose. As noted, the purpose is to strengthen the security and 
integrity of the drug supply chain through uniform national 
requirements, including with respect to licensure. This purpose would 
be frustrated if the statute were implemented in a manner that could 
lead to supply chain disruption, due to licensing uncertainties, while 
the national licensure standards are pending. Thus, Congress included 
in the DSCSA provisions which recognize state licensure of WDDs and 
3PLs prior to the effective date of Federal licensing standards. If 
preemption under section 585(b)(1) were construed to preempt states 
from continuing to license WDDs and 3PLs even before Federal standards 
are in place, there could be confusion whether these supply chain 
entities have valid licensure, to the detriment of supply chain 
operations. Accordingly, we believe that read as a whole, the statute 
can be reasonably interpreted as providing for preemption to apply only 
upon the effective date of this regulation, once finalized.

XI. Consultation and Coordination With Indian Tribal Governments

    We have analyzed this proposed rule in accordance with the 
principles set forth in Executive Order 13175. We have tentatively 
determined that the rule does not contain policies that would have a 
substantial direct effect on one or more Indian Tribes, on the 
relationship between the Federal Government and Indian Tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian Tribes. The Agency solicits comments from tribal 
officials on any potential impact on Indian Tribes from this proposed 
action.

XII. References

    The following references marked with an asterisk (*) are on display 
at the Dockets Management Staff (see ADDRESSES) and are available for 
viewing by interested persons between 9 a.m. and 4 p.m., Monday through 
Friday; they also are available electronically at https://www.regulations.gov. References without asterisks are not on public 
display at https://www.regulations.gov because they have copyright 
restriction. Some may be available at the website address, if listed. 
References without asterisks are available for viewing only at the 
Dockets Management Staff. FDA has verified the website addresses, as of 
the date this document publishes in the Federal Register, but websites 
are subject to change over time.

    * 1. 159 Cong. Rec. S8028 (2013) (Statement of Senator Barbara 
Mikulski); available at: https://www.congress.gov/113/crec/2013/11/14/CREC-2013-11-14-pt1-PgS8027-6.pdf.
    * 2. 159 Cong. Rec. H5964 (2013) (Statement of Representative 
James Matheson); available at: https://www.congress.gov/113/crec/2013/09/28/CREC-2013-09-28-pt1-PgH5946-2.pdf.
    * 3. 159 Cong. Rec. H5962 (2013) (Statement of Representative 
Robert Latta); available at: https://www.congress.gov/113/crec/2013/09/28/CREC-2013-09-28-pt1-PgH5946-2.pdf.
    * 4. FDA, Guidance for Industry: ``Draft Guidance for Industry 
on The Effect of Section 585 of the FD&C Act on Drug Product Tracing 
and Wholesale Drug Distributor and Third-Party Logistics Provider 
Licensing Standards and Requirements: Questions and Answers'' 
October 2014, (available at https://www.fda.gov/media/89954/download), accessed December 14, 2021.
    * 5. Ducca, A., Healthcare Distribution Management Association, 
Public comment letter Document ID: FDA-2014-D-1411-0012, submitted 
on December 24, 2014, to Docket No. FDA-2014-D-1411 pertaining to 
the ``Draft Guidance for Industry on The Effect of Section 585 of 
the FD&C Act on Drug Product Tracing and Wholesale Drug Distributor 
and Third-Party Logistics Provider Licensing Standards and 
Requirements: Questions and Answers; Availability,'' October 8, 2014 
(available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0012), accessed December 14, 2021.
    * 6. Ventimiglia, V., Pharmaceutical Distribution Security 
Alliance, Public comment letter Document ID: FDA-2014-D-1411-0007, 
submitted on December 24, 2014, to Docket No. FDA-2014-D-1411 
pertaining to the ``Draft Guidance for Industry on The Effect of 
Section 585 of the FD&C Act on Drug Product Tracing and Wholesale 
Drug Distributor and Third-Party Logistics Provider Licensing 
Standards and Requirements: Questions and Answers; Availability,'' 
October 8, 2014 (available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0007), accessed December 14, 2021.
    * 7. Rouse O'Neill, L., Health Industry Distributors Alliance, 
Public comment letter Document ID: FDA-2014-D-1411-0013, submitted 
on December 24, 2014, to Docket No. FDA-2014-D-1411 pertaining to 
the ``Draft Guidance for Industry on The Effect of Section 585 of 
the FD&C Act on Drug Product Tracing and Wholesale Drug Distributor 
and Third-Party Logistics Provider Licensing Standards and 
Requirements: Questions and Answers; Availability,'' October 8, 2014 
(available at https://www.regulations.gov/document?D=FDA-2014-D-1411-0013), accessed December 14, 2021.
    8. Gallenagh, E.A, L.F. Hirsch, and K.L. Palmer, ``Title II--
Licensure of Wholesale Distributors and 3PLs,'' presented at Food 
and Drug Law Institute's Drug Quality Security Act Conference, 
November 15, 2017 (available at https://www.fdli.org/wp-content/uploads/2017/11/DQSA-Hrisch-B.pdf), accessed December 14, 2021.
    9. National Association of Boards of Pharmacy, ``Wholesale Drug 
Distribution: Protecting the Integrity of the Nation's Prescription 
Drug Supply,'' August 2013 (available at https://nabp.pharmacy/wp-content/uploads/2016/07/wholesale-drug-distribution-protecting-the-integrity-of-the-nations-prescription-drug-supply.pdf), accessed 
December 14, 2021.
    10. United States Department of Justice, ``Three California Men 
and Minnesota Corporation Indicted in Nationwide Prescription Drug 
Diversion Scheme,'' May 2015 (available at https://www.justice.gov/opa/pr/three-california-men-and-minnesota-corporation-indicted-nationwide-prescription-drug), accessed December 14, 2021.
    * 11. United States Department of Justice, ``Two Plead Guilty In 
Prescription Drug Diversion Scheme,'' May 2014 (available at https://www.justice.gov/usao-mdtn/pr/two-plead-guilty-prescription-drug-diversion-scheme), accessed December 14, 2021.
    12. National Association of Boards of Pharmacy, ``Model State 
Pharmacy Act and Model Rules of the National Association of Boards 
of Pharmacy'' (available at https://

[[Page 6737]]

nabp.pharmacy/publications-reports/resource-documents/model-
pharmacy-act-rules/), accessed December 14, 2021.
    13. Healthcare Distributors Alliance, ``HDA Model Licensure 
Standards for Third-Party Logistics Providers for FDA 
Consideration,'' February 2015 (available at https://www.hda.org/~/
media/pdfs/government-affairs/2015-02-10-traceability-resource-3pl-
licensure-model.ashx), accessed December 14, 2021.
    * 14. World Health Organization, ``Annex 5: WHO good 
distribution practices for pharmaceutical products,'' 2010 
(available at https://www.who.int/medicines/areas/quality_safety/quality_assurance/GoodDistributionPracticesTRS957Annex5.pdf)), 
accessed December 14, 2021.
    15. National Association of Boards of Pharmacy and the 
Pharmaceutical Inspection Convention and Pharmaceutical Inspection 
Co-operation Scheme (jointly referred to as PIC/S) (available at 
https://www.picscheme.org/), accessed December 14, 2021.
    * 16. U.S. Food and Drug Administration, ``Prescription Drug 
Marketing Act, Report to Congress,'' June 2001 (available at https://wayback.archive-it.org/7993/20170405002846/https://www.fda.gov/RegulatoryInformation/LawsEnforcedbyFDA/SignificantAmendmentstotheFDCAct/PrescriptionDrugMarketingActof1987/ucm203148.htm), accessed December 14, 2021.
    17. National Association of Boards of Pharmacy, ``Prescription 
Medication Distribution--The Five Percent Rule for Resale 
(Resolution 109-2-13),'' June 2013 (available at https://nabp.pharmacy/news/news-releases/prescription-medication-distribution-the-five-percent-rule-for-resale-resolution-109-2-13/), 
accessed December 14, 2021.
    18. FDA, ``National Standards for the Licensure of Wholesale 
Drug Distributors and Third-Party Logistics Providers; Preliminary 
Regulatory Impacts Analysis,'' (available at http://www.fda.gov/AboutFDA/ReportsManualsForms/Reports/EconomicAnalyses/default.htm).

List of Subjects

21 CFR Part 10

    Administrative practice and procedure, News media.

21 CFR Parts 12 and 16

    Administrative practice and procedure.

21 CFR Part 205

    Intergovernmental relations, Prescription drugs, Reporting and 
recordkeeping requirements, Security measures, Warehouses.

    Therefore, under the Federal Food, Drug, and Cosmetic Act and under 
authority delegated to the Commissioner of Food and Drugs, we propose 
that 21 CFR parts 10, 12, 16, and 205 be amended as follows:

PART 10--ADMINISTRATIVE PRACTICES AND PROCEDURES

0
1. The authority citation for part 10 continues to read as follows:

    Authority: 5 U.S.C. 551-558, 701-706; 15 U.S.C. 1451-1461; 21 
U.S.C. 141-149, 321-397, 467f, 679, 821, 1034; 28 U.S.C. 2112; 42 
U.S.C. 201, 262, 263b, 264.

0
2. In Sec.  10.50, add paragraph (c)(21) to read as follows:

Sec.  10.50  Promulgation of regulations and orders after an 
opportunity for a formal evidentiary public hearing.

* * * * *
    (c) * * *
    (21) Sections 503(e), 583, and 584 on denial, suspension, or 
revocation of third-party logistics provider licenses or wholesale 
distributor licenses.

PART 12--FORMAL EVIDENTIARY PUBLIC HEARING

0
3. The authority citation for part 12 continues to read as follows:

    Authority: 21 U.S.C. 141-149, 321-393, 467f, 679, 821, 1034; 42 
U.S.C. 201, 262, 263b-263n, 264; 15 U.S.C. 1451-1461; 5 U.S.C. 551-
558, 701-721; 28 U.S.C. 2112.

0
4. In Sec.  12.21, revise paragraphs (a) introductory text and (a)(2) 
to read as follows:

Sec.  12.21  Initiation of a hearing involving the issuance, amendment, 
or revocation of an order.

    (a) A proceeding under section 503(e); 505(d) or (e); 512(d), (e), 
(m)(3) or (4); 515(g)(1); 583; or 584 of the Federal Food, Drug, and 
Cosmetic Act, or section 351(a) of the Public Health Service Act, may 
be initiated--
* * * * *
    (2) By a petition in the form specified elsewhere in this chapter, 
e.g., Sec.  205.9 for licenses for third-party logistics providers, 
Sec.  205.30 for licenses for wholesale distributors, Sec.  314.50 for 
new drug applications, Sec.  514.1 for new animal drug applications, 
Sec.  514.2 for applications for animal feeds, or Sec.  601.3 for 
licenses for biologic products; or
* * * * *

PART 16--REGULATORY HEARING BEFORE THE FOOD AND DRUG ADMINISTRATION

0
5. The authority citation for part 16 continues to read as follows:

    Authority:  15 U.S.C. 1451-1461; 21 U.S.C. 141-149, 321-394, 
467f, 679, 821, 1034; 28 U.S.C. 2112; 42 U.S.C. 201-262, 263b, 364.

0
6. In Sec.  16.1:
0
a. Designate the 16 undesignated paragraphs immediately following 
paragraph (b)(1) as paragraphs (b)(1)(i) through (xvi).
0
b. In paragraph (b)(2):
0
i. Remove ``Sec. Sec.  '' and ``Sec.  '' everywhere they appear and add 
``Sections'' and ``Section'' in their places, respectively;
0
ii. Designate the first 14 undesignated paragraphs immediately 
following paragraph (b)(2) as paragraphs (b)(2)(i) through (xiv);
0
iii. Add paragraphs (b)(2)(xv) and (xvi); and
0
iv. Designate the last 23 undesignated paragraphs as paragraphs 
(b)(2)(xvii) through (xxxix).
    The additions read as follows:

Sec.  16.1  Scope.

* * * * *
    (b) * * *
    (2) * * *
    (xv) Section 205.19, relating to revocation or suspension of 
approval for an approved organization to conduct licensure reviews for 
third-party logistics provider applicants.
    (xvi) Section 205.33, relating to revocation or suspension of 
approval for an approved organization to conduct inspections of 
wholesale distributors.
* * * * *
0
7. Revise part 205 to read as follows:

PART 205--NATIONAL STANDARDS FOR THIRD-PARTY LOGISTICS PROVIDERS 
AND PRESCRIPTION DRUG WHOLESALE DISTRIBUTORS

Sec.
205.1 Scope.
205.2 Purpose.
205.3 Definitions.
Subpart A--Third-Party Logistics Providers Licensure Standards
205.4 Requirement that third-party logistics providers be licensed.
205.5 General application requirements for licensure.
205.6 Federal licensure process.
205.7 Changes to information, location, or ownership of a licensed 
3PL.
205.8 Expiry and renewal.
205.9 Licensure denial, suspension, reinstatement, revocation, and 
voluntary termination: notice and opportunity to request a hearing.
205.10 Good storage practices for 3PL facilities.
205.11 Personnel requirements necessary for good storage practices.
205.12 Required written policies and procedures.
205.13 Recordkeeping and document maintenance.
205.14 3PLs must provide upon request a list of trading partners.
205.15 Requirements for initial and annual reporting to the Food and 
Drug Administration.
205.16 Inspections.
Subpart B--Approved Organizations for 3PLS
205.17 Use of approved third-party organizations.

[[Page 6738]]

205.18 General qualifications of approved organizations.
205.19 Process and procedures for approval by the Food and Drug 
Administration.
Subpart C--Wholesale Distributors Licensure Standards
205.20 Requirement that prescription drug wholesale distributors be 
licensed.
205.21 Surety bond requirement.
205.22 General application requirements for licensure.
205.23 Federal licensure process.
205.24 Changes to information, operation, location, or ownership of 
a wholesale distributor.
205.25 Prohibited persons and qualifications for key personnel.
205.26 National standards for the storage and handling of 
prescription drugs for wholesale distribution.
205.27 Standards for the establishment and maintenance of records of 
the distribution of prescription drugs.
205.28 Inspections.
205.29 Requirements for initial and annual reporting to the Food and 
Drug Administration.
205.30 Licensure denial, suspension, reinstatement, revocation, and 
voluntary termination--notice and opportunity to request a hearing.
Subpart D--Approved Organizations for Wholesale Distributors
205.31 Use of approved third-party organizations.
205.32 General qualifications of approved organizations.
205.33 Process and procedures for approval by the Food and Drug 
Administration.

    Authority: 21 U.S.C. 351, 352, 353, 360eee-2, 360eee-3, 360eee-
4, 371, 374.

Sec.  205.1  Scope.

    (a) This part applies to the licensure of third-party logistics 
providers (3PLs) in any State and to any entity engaging in wholesale 
distribution of prescription drugs in any State. The standards 
established under subpart A of this part will apply to all State and 
Federal licenses described under sections 503(e)(5) and 584 of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 353(e)(5) and 360eee-
3). The standards established under subpart C of this part will apply 
to all State and Federal licenses described under sections 503(e)(1) 
and 583 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
353(e)(1) and 360eee-2).
    (b) A facility or entity that conducts 3PL activities must obtain a 
3PL license for each facility as described in this part and is not 
required to obtain a license as a wholesale distributor unless it is 
also conducting wholesale distribution activities, in which case, the 
entity or facility must obtain both a 3PL license as described in 
subpart A of this part and a wholesale distributor license as described 
in subpart C of this part. Unless otherwise noted, the term ``3PL'' or 
``third-party logistics provider'' in this part applies to both the 
entity and the individual facilities requiring a license.
    (c) Subpart B of this part applies to any third-party organization 
seeking to obtain or maintain approval by the Food and Drug 
Administration (FDA or the Agency) to evaluate the qualifications of 
3PLs for licensure. Subpart D of this part applies to any third-party 
organization seeking to obtain or maintain approval by the Food and 
Drug Administration to conduct inspections of wholesale distributors.

Sec.  205.2  Purpose.

    The purpose of this part is to establish standards, terms, and 
conditions for the licensing of 3PLs and prescription drug wholesale 
distributors by State or Federal licensing authorities, including a 
process for the revocation, reissuance, and renewal of such licenses. 
This part also establishes the process and standards the Food and Drug 
Administration will use to approve third-party organizations to 
evaluate the qualifications of 3PLs for licensure and conduct 
inspections of wholesale distributor facilities.

Sec.  205.3  Definitions.

    The definitions and interpretations of terms contained in section 
581 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360eee) 
apply to those terms when used in this part. The following terms are 
also defined for purposes of this part:
    (a) 3PL activities means the provision or coordination of 
warehousing, or other logistics services of a product in interstate 
commerce on behalf of a manufacturer, wholesale distributor, or 
dispenser of a product, while not taking ownership of the product, nor 
having the responsibility to direct the sale or disposition of the 
product.
    (b) Change of entity ownership means:
    (1) Partnership. In the case of a partnership, the removal, 
addition, or substitution of a partner.
    (2) Unincorporated sole proprietorship. In the case of an 
unincorporated sole proprietorship, the transfer of title and property 
to another party.
    (3) Corporation. In the case of a corporation, the merger of the 
licensed corporation into another corporation or the consolidation of 
two or more corporations, resulting in the creation of a new 
corporation. Transfer of corporate stock or the merger of another 
corporation into the licensed corporation does not constitute change of 
entity ownership.
    (4) Limited liability company (LLC). In the case of an LLC, the 
merger of the licensed LLC into another LLC or the consolidation of two 
or more LLCs, resulting in the creation of a new LLC. Transfer of 
company stock or the merger of another LLC into the licensed LLC does 
not constitute change of ownership.
    (c) Co-licensed partner means one of two or more entities that have 
entered a written agreement for the right to engage in the marketing of 
a prescription drug.
    (d) Designated representative means an individual who is designated 
as the representative of the facility manager and is responsible for 
managing the daily operations of the wholesale distributor or 3PL 
facility.
    (e) Entity or entities means a business organization, such as a 
corporation, company, association, firm, partnership, society, sole 
proprietorship, or joint stock company.
    (f) Facility means an establishment, warehouse, structure, or 
structures under common ownership at one general, permanent, physical 
location used for distribution, including storage and handling, of 
prescription drugs.
    (g) Key personnel means any individual who has responsibility for 
managing the operations of the wholesale distributor, including any 
principal, owner, director, officer of the wholesale distributor, 
facility manager, or designated representative, or other individuals 
who are authorized to enter areas where prescription drugs are held and 
are likely to handle those prescription drugs as a part their 
responsibilities within the operation.
    (h) Minimal quantities means the total annual dollar volume of 
prescription drugs sold by a retail pharmacy to licensed practitioners 
for office use does not exceed 5 percent of the total dollar volume of 
that retail pharmacy's annual prescription drug sales.
    (i) Other logistics services include services provided by entities 
that accept or transfer direct possession of products from that 
entity's facility within the United States and its territories on 
behalf of a trading partner (e.g., manufacturer, wholesale distributor, 
dispenser) but that do not take ownership of the product nor have the 
responsibility to direct a product's sale or disposition. ``Other 
logistics services'' also means services undertaken with respect to a 
product for a repackager acting on behalf of a manufacturer, wholesale 
distributor, or dispenser.
    (j) Other than a consumer or patient means the person receiving the 
drug is not:

[[Page 6739]]

    (1) The individual identified as the recipient of the prescription 
drug;
    (2) A dispenser fulfilling a specific patient need as defined in 
section 581(19) of the Federal Food, Drug, and Cosmetic Act; or
    (3) The clinical investigator, as defined in Sec.  312.3(b) of this 
chapter.
    (k) Product means a prescription drug in a finished dosage form for 
administration to a patient without substantial further manufacturing 
(e.g., capsules, tablets, lyophilized products before reconstitution).
    (l) Significant disciplinary action means any action by a State or 
Federal licensing authority that limits or prevents a 3PL from 
conducting 3PL activities related to the distribution of prescription 
drugs, or limits or prevents a wholesale distributor from distributing, 
as that term is defined in section 581(5) of the Federal Food, Drug and 
Cosmetic Act, or facilitating the distribution of prescription drugs. 
This includes the revocation or suspension of a 3PL or wholesale 
distributor license, or of a registration with the Drug Enforcement 
Administration.
    (m) Unfit for distribution means a prescription drug that has been 
identified as a drug whose sale would violate the Federal Food, Drug, 
and Cosmetic Act. This includes prescription drugs identified as 
suspect or illegitimate pursuant to section 582(c) of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 360eee-1(c)); adulterated pursuant to 
section 501 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
351), including drugs rendered nonsaleable because conditions such as 
return, recall, damage, or expiry cast doubt on the drug's safety, 
identity, strength, quality, or purity; or misbranded pursuant to 
section 502 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
352).
    (n) Wholesale distribution means the distribution of a drug subject 
to section 503(b) of the Federal Food, Drug, and Cosmetic Act (21 
U.S.C. 353(b)) to a person other than a consumer or patient, or receipt 
of a drug subject to section 503(b) of the Federal Food, Drug, and 
Cosmetic Act by a person other than the consumer or patient, but does 
not include:
    (1) Intracompany distribution of any drug between members of an 
affiliate or within a manufacturer;
    (2) The distribution of a drug or an offer to distribute a drug 
among hospitals or other health care entities that are under common 
control;
    (3) The distribution of a drug or an offer to distribute a drug for 
emergency medical reasons, including a public health emergency 
declaration pursuant to section 319 of the Public Health Service Act 
(42 U.S.C. 247d), except that, for purposes of this paragraph (n)(3), a 
drug shortage not caused by a public health emergency will not 
constitute an emergency medical reason;
    (4) The dispensing of a drug pursuant to a prescription executed in 
accordance with section 503(b) of the Federal Food, Drug, and Cosmetic 
Act;
    (5) The distribution of minimal quantities of a drug by a licensed 
retail pharmacy to a licensed practitioner for office use;
    (6) The distribution of a drug or an offer to distribute a drug by 
a charitable organization to a nonprofit affiliate of the organization 
to the extent otherwise permitted by law;
    (7) The purchase or other acquisition by a dispenser, hospital, or 
other health care entity of a drug for use by such dispenser, hospital, 
or other health care entity;
    (8) The distribution of a drug by the manufacturer of such drug;
    (9) The receipt or transfer of a drug by an authorized 3PL, 
provided that such 3PL does not take ownership of the drug;
    (10) A common carrier that transports a drug, provided that the 
common carrier does not take ownership of the drug;
    (11) The distribution of a drug, or an offer to distribute a drug 
by an authorized repackager that has taken ownership or possession of 
the drug and repacks it in accordance with section 582(e) of the 
Federal Food, Drug, and Cosmetic Act;
    (12) Saleable drug returns when conducted by a dispenser;
    (13) The distribution of a collection of finished medical devices, 
which may include a product or biological product, assembled in kit 
form strictly for the convenience of the purchaser or user (referred to 
in paragraphs (n)(13)(i) through (iv) of this section as a medical 
convenience kit) if:
    (i) The medical convenience kit is assembled in an establishment 
that is registered with the Food and Drug Administration as a device 
manufacturer in accordance with section 510(b)(2) of the Federal Food, 
Drug, and Cosmetic Act (21 U.S.C. 360(b)(2));
    (ii) The medical convenience kit does not contain a controlled 
substance that appears in a schedule contained in the Controlled 
Substances Act;
    (iii) In the case of a medical convenience kit that includes a 
product, the person that manufactures the kit:
    (A) Purchased such product directly from the pharmaceutical 
manufacturer or from a wholesale distributor that purchased the product 
directly from the pharmaceutical manufacturer; and
    (B) Did not alter the product's primary container or label as 
purchased from the manufacturer or wholesale distributor;
    (iv) In the case of a medical convenience kit that includes a 
product, the product is:
    (A) An intravenous solution intended for the replenishment of 
fluids and electrolytes;
    (B) A product intended to maintain the equilibrium of water and 
minerals in the body;
    (C) A product intended for irrigation or reconstitution;
    (D) An anesthetic;
    (E) An anticoagulant;
    (F) A vasopressor; or
    (G) A sympathomimetic;
    (14) The distribution of an intravenous drug that, by its 
formulation, is intended for the replenishment of fluids and 
electrolytes (such as sodium, chloride, and potassium) or calories 
(such as dextrose and amino acids);
    (15) The distribution of an intravenous drug used to maintain the 
equilibrium of water and minerals in the body (such as dialysis 
solutions);
    (16) The distribution of a drug that is intended for irrigation, or 
sterile water, whether intended for such purposes or for injection;
    (17) The distribution of medical gas, as defined in section 575 of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360ddd);
    (18) Facilitating the distribution of a product by providing solely 
administrative services, including processing of orders and payments; 
or
    (19) The transfer of a product by a hospital or other health care 
entity, or by a wholesale distributor or manufacturer operating at the 
direction of the hospital or other health care entity, to a repackager 
as described in section 581(16)(B) of the Federal Food, Drug, and 
Cosmetic Act and registered under section 510 of the Federal Food, 
Drug, and Cosmetic Act for the purpose of repackaging the drug for use 
by that hospital or other health care entity, and other health care 
entities that are under common control, if ownership of the drug 
remains with the hospital or other health care entity at all times.

Subpart A--Third-Party Logistics Providers Licensure Standards

Sec.  205.4  Requirement that third-party logistics providers be 
licensed.

    (a) No 3PL may conduct 3PL activities unless each facility of the 
3PL is licensed:
    (1) By the State from which the 3PL conducts 3PL activities; or

[[Page 6740]]

    (2) If the State from which the 3PL conducts 3PL activities has not 
established a licensure requirement in accordance with the standards 
set forth in this part, by the Food and Drug Administration; and
    (3) If the product is distributed interstate, by the State into 
which the 3PL distributes the product if such licensure is required by 
that State, and the 3PL is not licensed by the Food and Drug 
Administration under Sec.  205.6.
    (b) Each facility owned, leased, or rented by a 3PL must have a 
separate license.
    (c) Licenses are facility- and owner-specific and are not 
transferable.
    (d) The 3PL must maintain its license at the licensed facility in a 
readily retrievable manner and must permit inspection of the license by 
any official, agent, or employee of the licensing authority or of any 
Federal, State, or local agency engaged in enforcement of laws relating 
to the distribution of prescription drugs.

Sec.  205.5  General application requirements for licensure.

    (a) Applicant requirements. An individual who submits an 
application on behalf of a 3PL for a license issued pursuant to this 
subpart must:
    (1) Be 18 years of age or older;
    (2) Submit an affidavit that such individual's ownership or 
management of or employment by the 3PL would not preclude the 3PL from 
receiving or maintaining a license under Sec.  205.11(f);
    (3) Submit all application information required in the form 
required by the licensing authority; and
    (4) Pay any licensing fees that are required by the licensing 
authority pursuant to section 584(c) of the Federal Food, Drug, and 
Cosmetic Act.
    (b) General requirements for licensure application. The State or 
Federal licensing authority will require the following information from 
each 3PL facility as part of the initial application for the license 
described in Sec.  205.4 and as part of any renewal of such license:
    (1) The name and title of the individual who submits the 
application for licensure on behalf of the 3PL;
    (2) The name of the 3PL as it should appear on the license, full 
business address of the facility, and telephone number;
    (3) All trade or business names used by the 3PL, including prior 
trade or business names, within the past 7 years;
    (4) Name, email address, and telephone number of the 3PL's facility 
manager or designated representative;
    (5) The type of ownership or operation of the business entity, such 
as a partnership, corporation, limited liability company, or sole 
proprietorship;
    (6) The name of any owners or operators of the 3PL, including:
    (i) If a sole proprietorship, the full name of the sole proprietor 
and the name of the business entity;
    (ii) If a partnership, the name of each partner and the name of the 
partnership;
    (iii) If a corporation, the corporate names, the names of any 
subsidiaries and affiliates, the name and title of each corporate 
officer and director, and the State of incorporation; and
    (iv) If a limited liability company, the name of the limited 
liability company, including any subsidiaries and affiliates, the name 
of each member, and the State in which the limited liability company 
was organized; and
    (7) Whether the 3PL facility manager or designated representative 
has ever been convicted of a felony relating to prescription drug 
distribution, including a conviction under section 301(i) or (k) of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 331(i) or (k)) or 18 
U.S.C. 1365, relating to product tampering, together with details 
concerning any such events.
    (c) General requirements for renewal applications. On the renewal 
application provided by the State or Federal licensing authority, the 
3PL must:
    (1) Certify that the 3PL has continued to meet all the standards 
and complied with the requirements in this subpart since the previous 
license was issued; and
    (2) Inform the applicable licensing authority of any changes to 
information previously submitted pursuant to paragraph (b) of this 
section or Sec.  205.6(a)(2) for which a notification was not already 
submitted to the licensing authority under Sec.  205.7.

Sec.  205.6  Federal licensure process.

    (a) Procedures for filing an FDA application for a 3PL license. (1) 
Each 3PL facility must electronically submit an application to the Food 
and Drug Administration for a license to conduct 3PL activities in a 
State if the State does not have a 3PL licensure program consistent 
with the standards set forth in this section. The application must 
include the information specified in Sec.  205.5, along with supporting 
documentation that demonstrates the applicant's storage practices are 
sufficient to ensure the continued safety, identity, strength, quality, 
and purity of the products in the facility.
    (2) If one or more organizations have been approved by the Food and 
Drug Administration to conduct a review of a 3PL's qualifications for 
licensure pursuant to Sec.  205.17, the 3PL will indicate in its 
application to the Food and Drug Administration which approved 
organization (AO) it prefers to conduct its licensure review. If there 
is no organization approved by the Food and Drug Administration to 
conduct licensure review, the Food and Drug Administration will conduct 
the review, as described in Sec.  205.17(b). Licensure review must 
consist of:
    (i) Review of all documents submitted in support of the application 
for 3PL licensure; and
    (ii) Inspection of the facility, as directed by the licensing 
authority pursuant to Sec.  205.16(a) or (b).
    (3) The applicant, or the applicant's agent or other authorized 
official, must sign the application.
    (4) An application for a 3PL license will not be considered as 
filed until the Food and Drug Administration has received all pertinent 
information and fees.
    (b) Determination that licensing requirements have been met. The 
Food and Drug Administration, not an AO, will determine whether the 3PL 
meets all the applicable requirements set forth in this part.
    (c) Notification of easily correctable deficiencies. The Food and 
Drug Administration will make every reasonable effort to promptly 
communicate to applicants easily correctable deficiencies found in an 
application when those deficiencies are discovered, particularly 
deficiencies concerning storage, handling, distribution, or 
recordkeeping issues. The Food and Drug Administration will also 
promptly inform applicants of its need for more data or information or 
for changes in the application needed to facilitate the Agency's 
review.
    (d) Issuance of 3PL license by FDA. Approval of a 3PL license 
application or issuance of a 3PL license constitutes a determination by 
the Food and Drug Administration that, based upon the information 
provided and reviewed, the 3PL meets the applicable requirements to be 
licensed under section 584 of the Federal Food, Drug, and Cosmetic Act. 
The Food and Drug Administration will approve an application and send 
the applicant an approval letter and license certificate if none of the 
reasons in Sec.  205.9(a)(1) for refusing to approve the application 
applies. Applicable requirements for the maintenance of 3PL facilities 
to conduct 3PL activities will include but not be limited to the good 
storage practices set forth under Sec.  205.10. A license is effective 
on the date of issuance of the license certificate.

[[Page 6741]]

    (e) Validity of 3PL license. Licenses issued to 3PL facilities will 
remain valid until the date of expiration, unless suspended or revoked.

Sec.  205.7  Changes to information, location, or ownership of a 
licensed 3PL.

    (a) Any change to any information required in this subpart, 
including changes to any information required pursuant to Sec. Sec.  
205.5, 205.6, 205.11, and 205.15, must be submitted electronically to 
the licensing authority within 30 calendar days after such change is 
effective, except where otherwise provided in this subpart.
    (b) Any change in the location of a facility at which 3PL 
activities are conducted will require a new license and inspection of 
the new facility prior to its beginning operations.
    (1) The application for a new license required by Sec.  205.5 must 
be submitted no later than 90 calendar days prior to beginning 
operations at the new location.
    (2) On the date the change of location takes place, the license for 
the original facility is void.
    (c) Any change in the entity engaged in 3PL activities in a 
facility will require a new license prior to beginning operations.
    (1) The application for a new license required by Sec.  205.5 must 
be submitted no later than 30 calendar days prior to the change in 
ownership.
    (2) A new inspection of the facility may also be required at the 
licensing authority's discretion.
    (3) A 3PL can continue to operate under the original license for 30 
calendar days after the change of ownership occurs or until the license 
application of the new owner is approved, whichever is sooner.

Sec.  205.8  Expiry and renewal.

    Any license issued or renewed pursuant to Sec.  205.5 or Sec.  
205.6 will expire 3 years after the date issued. A 3PL renewal 
application will not be accepted more than 90 calendar days before the 
date of expiration. A 3PL will not be penalized for administrative 
delay on the part of the licensing authority in issuing a new license. 
A license will be considered valid during the period of the 
administrative delay if the 3PL timely submitted the renewal 
application.

Sec.  205.9  Licensure denial, suspension, reinstatement, revocation, 
and voluntary termination: notice and opportunity to request a hearing.

    (a) Denial of application for licensure. (1) The licensing 
authority will refuse to approve or renew a 3PL license application for 
any of the following reasons:
    (i) The facilities and controls used for the receipt, security, 
storage, inventory, shipment, or distribution of the product are 
inadequate to facilitate safe operations pursuant to Sec.  205.10(b).
    (ii) The methods or procedures to be used in the receipt, security, 
storage, inventory, shipment, or distribution of the product do not 
comply with the requirements for good storage practices in Sec.  
205.10.
    (iii) The personnel employed by the applicant do not meet the 
requirements necessary for good storage practices in Sec.  205.11.
    (iv) There is insufficient information in the written policies and 
procedures required in Sec.  205.12 to determine whether the methods or 
procedures to be used in the receipt, security, storage, inventory, 
shipment, or distribution of the product comply with the requirements 
for good storage practices in Sec.  205.10, or to determine whether the 
facilities and controls to be used in the receipt, security, storage, 
inventory, shipment, or distribution of the product facilitate safe 
operations.
    (v) The methods or procedures to be used in the receipt, storage, 
handling, or distribution of the product do not comply with the 
requirements for adequate recordkeeping in Sec.  205.10 or Sec.  
205.13.
    (vi) The application contains an untrue statement of material fact.
    (vii) The applicant does not permit a properly authorized officer 
or employee of FDA, a State licensing authority, or an organization 
approved by the Food and Drug Administration pursuant to Sec.  205.17 
an adequate opportunity to inspect the facilities, controls, and any 
records relevant to the application.
    (viii) For renewal applications, failure to report to the licensing 
authority any pertinent change of information required in Sec.  205.5 
or Sec.  205.7.
    (ix) For renewal applications, failure to comply with any of the 
requirements for annual reporting in Sec.  205.15.
    (2) If a 3PL's application fails to demonstrate that the 3PL meets 
the requirements for licensure set forth in this part, the licensing 
authority will provide written notice to the applicant that its license 
application may be denied, setting forth the grounds for the denial and 
an opportunity to demonstrate that the 3PL meets the requirements for 
licensure.
    (3) The notice will inform the applicant of its right to provide 
additional information and request reconsideration of the denial by the 
licensing authority within 14 calendar days of the date of the 
licensing authority's written notice.
    (4) If no reconsideration is sought or if, upon reconsideration, 
the licensing authority denies the applicant's request for licensure, 
the licensing authority will provide the applicant written notice of 
the denial and will provide the applicant notice of the opportunity to 
request a hearing.
    (5) The applicant who wishes to request a hearing has 10 calendar 
days after the date of the notice of denial to submit a written notice 
of participation and request for a hearing. The applicant who fails to 
submit a written notice of participation and request for a hearing 
within 10 calendar days waives the opportunity for a hearing.
    (6) Parts 10 through 16 of this chapter apply to 3PL licenses 
issued by the Food and Drug Administration under section 584 of the 
Federal Food, Drug, and Cosmetic Act.
    (b) Suspension of license after notice and opportunity to request a 
hearing. (1) The licensing authority may move to suspend a license if 
the licensing authority has a reasonable belief that the licensee has 
failed to comply with any of the standards for receiving and 
maintaining licensure described in this subpart.
    (2) The licensing authority will provide written notice of intent 
to suspend a 3PL license setting forth the grounds for the suspension 
pursuant to this part, including what information would be required to 
demonstrate or achieve compliance. The notice will inform the applicant 
of its right to provide additional information, request reconsideration 
of the suspension by the licensing authority, and demonstrate or 
achieve compliance before suspension.
    (3) Each 3PL license holder has 30 calendar days from the date of 
the notice of intent to suspend to present, in writing, comments and 
information bearing on the initial decision.
    (4) If no comments or information are received within 30 calendar 
days or if, upon reconsideration, the licensing authority believes the 
3PL license should still be suspended, the licensing authority will 
provide the 3PL a second written notice of the intent to suspend, 
informing the 3PL of the opportunity to request a hearing on the 
question of whether there are grounds for suspension.
    (5) The written notice will contain a statement that the 3PL will 
be afforded an opportunity to request a hearing.
    (6) The 3PL must submit a written notice of participation and 
request a hearing in writing within 10 calendar days after the date of 
notice of the intent to suspend. A 3PL that fails to submit

[[Page 6742]]

a written notice of participation and request for hearing within 10 
calendar days waives the opportunity for a hearing and the license will 
be suspended.
    (7) Parts 10 through 16 of this chapter apply to 3PL licenses 
issued by the Food and Drug Administration under section 584 of the 
Federal Food, Drug, and Cosmetic Act.
    (8) If a 3PL's license is suspended and the 3PL does not 
demonstrate or achieve compliance to the licensing authority's 
satisfaction within the time period indicated in the notice of 
suspension, the licensing authority will move to revoke the 3PL's 
license.
    (c) Immediate suspension of license. (1) The licensing authority 
may suspend a license effective immediately if the licensing authority 
reasonably believes that the licensee has failed to comply with any of 
the standards for receiving and maintaining licensure described in this 
subpart and that the nature of the noncompliance at issue would 
reasonably be expected to cause an imminent threat to public health.
    (2) The licensing authority will provide the 3PL with written 
notice of immediate suspension of its license setting forth the grounds 
for the immediate suspension pursuant to this part, including what 
information would be required to demonstrate compliance, and the 
opportunity to request a hearing within 10 calendar days of the 3PL's 
request for such hearing.
    (3) The 3PL must submit a written notice of participation and 
request a hearing in writing within 10 calendar days after the date of 
the written notice of immediate suspension. A 3PL that fails to submit 
a written notice of participation and request for hearing within 10 
calendar days after the date of the written notice waives the 
opportunity for a hearing.
    (4) Parts 10 through 16 of this chapter apply to 3PL licenses 
issued by the Food and Drug Administration under section 584 of the 
Federal Food, Drug, and Cosmetic Act.
    (5) If a 3PL's license is suspended and the 3PL does not 
demonstrate or achieve compliance to the licensing authority's 
satisfaction within the time period indicated in the notice of 
suspension, the licensing authority will move to revoke the 3PL's 
license.
    (d) Reinstatement of suspended licenses. The licensing authority 
may reinstate a previously suspended license upon a 3PL's showing of 
compliance with requirements in this part and upon such inspection and 
examination as the licensing authority may require.
    (e) Revocation. (1) If compliance is not demonstrated or achieved 
to the licensing authority's satisfaction within the time period 
indicated in the notice of suspension, the licensing authority will 
move to revoke the 3PL's license.
    (2) The licensing authority will notify the 3PL of the intent to 
revoke the 3PL's license, setting forth the grounds for the revocation 
and offering an opportunity to request a hearing on the proposed 
revocation.
    (3) The written notice will contain a statement that the 3PL may 
request a hearing.
    (4) The 3PL must submit a written notice of participation and 
request a hearing within 10 calendar days after the date of the notice 
of revocation. A 3PL that fails to submit a written notice of 
participation and request for hearing within 10 calendar days waives 
the opportunity for a hearing.
    (5) Parts 10 through 16 of this chapter apply to 3PL licenses 
issued by the Food and Drug Administration under section 584 of the 
Federal Food, Drug, and Cosmetic Act.
    (f) Nonrenewal. If a license is suspended and the 3PL does not 
submit a renewal application by the date of expiration of the suspended 
license, the license will be considered expired. A 3PL may not conduct 
3PL activities with an expired license and must submit a new 
application for licensure if it wishes to conduct 3PL activities.
    (g) Voluntary termination of licensure upon request by the 3PL. The 
licensing authority will terminate a 3PL facility's license upon the 
3PL's request, which includes a notice of intent to discontinue its 3PL 
activities and waive opportunity for a hearing. A 3PL facility that 
voluntarily terminates licensure must obtain a new license before 
resuming 3PL activities.
    (1) If a 3PL facility that has had its license revoked wishes to 
apply for a new license, that facility must submit a new license 
application, which may include an inspection if required by the 
licensing authority under Sec.  205.16.
    (2) [Reserved]

Sec.  205.10  Good storage practices for 3PL facilities.

    (a) A facility owned, rented, or leased by a 3PL for the purpose of 
conducting 3PL activities must meet the storage practices for 
facilities required in paragraphs (b) through (d) of this section.
    (b) A facility to which a 3PL license has been issued in the same 
name and at the same address as another trading partner, such as a 
wholesale distributor, must maintain separate systems and processes for 
products that are specific to the 3PL.
    (c) A facility owned, leased, or rented by a 3PL in which 3PL 
activities are conducted must have suitable storage practices in place 
for such facility, as demonstrated by the following:
    (1) General requirements. The facility is:
    (i) Not a personal residence;
    (ii) Of a suitable size, construction, and configuration to ensure 
proper storage and distribution of all products warehoused at the 
facility, including lighting, ventilation, temperature, sanitation, 
humidity, space, equipment, and secure conditions where products are 
stored;
    (iii) Of a suitable size, construction, and configuration to 
facilitate cleaning, maintenance, proper logistics, and distribution 
operations, and to provide protection from intrusion; and
    (iv) Maintained in a clean and orderly condition, free from 
infestation of any kind.
    (A) A cleaning program schedule must be maintained, documented, and 
followed.
    (B) A pest control program, which is designed to ensure that the 
facility is free from infestation, must be in place, and pest control 
records must be kept.
    (2) Areas to handle separation of products that are unfit for 
distribution. The facility has:
    (i) Clearly defined, designated areas separate from saleable 
products to quarantine suspect product, illegitimate product, and other 
products that are unfit for distribution until dispositioned.
    (ii) Clearly defined, designated areas to handle separation of 
products that are returned, recalled, or expired.
    (iii) For returned or recalled products, clearly defined, 
designated areas separate from saleable products to handle returned or 
recalled product.
    (iv) For expired products, clearly defined, designated areas 
separate from saleable products from which expired product may be 
returned to the manufacturer or repackager or destroyed.
    (3) Security of premises. The facility is:
    (i) Designed so that designated areas of the facility where 
products are held are accessible only to personnel, regardless of 
employee or contractor status, position title, or ownership interest, 
who possess appropriate and verifiable experience and training 
necessary to safely and lawfully engage in 3PL activities; and
    (ii) Equipped with adequate security to protect from 
vulnerabilities and potential breaches. Adequate security must include 
precautions taken to ensure that:

[[Page 6743]]

    (A) The facility is secure from unauthorized entry;
    (B) Access from outside the premises is limited, well controlled, 
and documented;
    (C) The outside perimeter of the premises is well lit;
    (D) The facility is equipped with an alarm system to detect and 
notify appropriate personnel of entry after hours; and
    (E) The facility is equipped with a security system that provides 
suitable protection against theft and diversion of products.
    (4) Facility assessments. Facility assessments, including 
temperature mapping and other assessments designed to ensure products 
are properly stored in accordance with their labeling, must be 
regularly conducted and documented.
    (5) Equipment. Equipment must be utilized and maintained in good 
repair and must be suitable for 3PL activities, as demonstrated by the 
following:
    (i) The 3PL must be able to demonstrate that all equipment has been 
calibrated, as applicable, and validated at regular intervals to 
achieve the intended results accurately, consistently, and in a manner 
that can be reproduced by qualified individuals following approved 
procedures;
    (ii) The 3PL must use appropriate manual, electromechanical, or 
electronic temperature and humidity recording equipment or logs to 
document proper storage of products; and
    (iii) The monitoring equipment must alert appropriate personnel in 
a timely manner of any deviations from the intended storage conditions.
    (d) In addition to the requirements set forth in this subpart, 
products must be handled and stored in accordance with all applicable 
Federal and State laws.

Sec.  205.11  Personnel requirements necessary for good storage 
practices.

    (a) The 3PL must maintain a list of officers, directors, managers, 
and designated representatives; a description of their duties; and a 
summary of their qualifications. This list must be available for review 
by the State or Federal licensing authority.
    (b) Qualifications for the 3PL's facility manager or designated 
representative of such facility manager must include that the 
individual:
    (1) Has the education, background, training, and experience 
necessary to perform such individual's assigned functions;
    (2) Serves as the facility manager or designated representative of 
such facility manager for only one facility at a time; and
    (3) Is actively involved in and responsible for managing the daily 
operations of the 3PL facility.
    (c) The 3PL must provide the facility manager or designated 
representative adequate authorities and resources to effectively manage 
the 3PL's daily operations in accordance with the standards in this 
part.
    (d) The facility manager or designated representative is 
responsible for managing all the daily operations of the 3PL facility, 
including those duties delegated to other personnel.
    (e) A 3PL is prohibited from obtaining or maintaining licensure if 
the 3PL employs a facility manager or designated representative who has 
been:
    (1) Convicted of any felony violation of section 301(i) or (k) of 
the Federal Food, Drug, and Cosmetic Act; or
    (2) Convicted of any violation of 18 U.S.C. 1365, relating to 
product tampering.
    (f) Licensure may also be denied when storage practices are not 
sufficient to maintain adequate security because a facility manager or 
designated representative of such facility manager has been:
    (1) Found to have delayed or otherwise impeded an inspection by the 
Federal or State licensing authority or an approved third-party 
inspector, or if an inspector, after reasonable efforts, was unable to 
gain access to an establishment or a location to carry out the 
inspection required under Sec.  205.16 as permitted by section 704(a) 
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 374(a));
    (2) Found to have omitted material information or furnished false 
or fraudulent information in an application made in connection with the 
distribution of prescription drugs; or
    (3) Subject to licensure suspension or revocation by Federal, 
State, or local government for any license currently or previously held 
by the applicant for the manufacture or distribution of any drugs, 
including controlled substances.
    (g) Any facility manager or designated representative will be 
subject to criminal background checks. The results of the background 
checks must demonstrate no history of criminal convictions pursuant to 
paragraph (e) of this section.

Sec.  205.12  Required written policies and procedures.

    (a) General requirements for written policies and procedures. Every 
3PL must establish, maintain, and follow written policies and 
procedures as described in this section and relevant to the scope of 
their 3PL activities. The written policies and procedures must clearly 
delineate the responsibilities of the 3PL and any contractors used to 
fulfill any of the 3PL's duties. The written policies and procedures 
must also describe a system by which the 3PL will monitor all processes 
and, if deviations occur, document and investigate to determine the 
root cause of the deviation in a timely manner. Such written policies 
and procedures must be made available to the licensing authority upon 
request, and the licensing authority may copy records to ensure the 3PL 
is following written policies and procedures.
    (1) Written policies and procedures must include, but are not 
limited to, the following:
    (i) Documentation pertaining to receipt, security, storage, 
handling, inventory, shipment, and distribution of products, including 
written policies and procedures for identifying, recording, and 
reporting confirmed losses, thefts, diversions, and products unfit for 
distribution; and
    (ii) Documentation pertaining to all policies, procedures, 
instructions, contracts, data, inspection reports, and any other 
documentation related to compliance with this part.
    (b) Personnel. The 3PL must establish, maintain, and follow written 
policies and procedures that ensure the qualifications of personnel are 
met, maintained, and documented as required in Sec.  205.11. These 
written policies and procedures must be available for review by the 
State or Federal licensing authority, as provided in Sec.  205.13.
    (c) Written policies and procedures. The 3PL must maintain written 
policies and procedures to address receipt, security, storage, 
inventory, shipment, and distribution of the product.
    (1) Receipt. The 3PL must establish, maintain, and follow written 
policies and procedures providing for the inspection of all shipping 
containers in accordance with the following standards:
    (i) Incoming shipments. Upon receipt, each shipping container must 
be visually examined for identity and for conditions that would suggest 
the product may be unfit for distribution.
    (ii) Outgoing shipments. Each outgoing shipment must be properly 
inspected for identity of the product and to ensure that there is no 
shipment of product that is unfit for distribution.
    (2) Security. The 3PL must establish, maintain, and follow written 
policies and procedures that provide for the secured storage of 
products and preserve the integrity of the 3PL's data and records.

[[Page 6744]]

    (3) Storage. The 3PL must establish, maintain, and follow written 
policies and procedures that ensure products are stored at appropriate 
temperatures and under appropriate conditions, in accordance with the 
requirements in the products' labeling, to preserve their identity, 
strength, quality, and purity.
    (4) Inventory. The 3PL must establish, maintain, and follow written 
policies and procedures related to inventory controls that:
    (i) Ensure the facility's stock is inventoried regularly to protect 
against diversion and against distribution of product that may be unfit 
for distribution;
    (ii) Contain procedures to identify, investigate, document, and 
correct stock errors, inaccuracies, and irregularities, including 
product theft, loss, or diversion;
    (iii) Identify, record, and report confirmed product losses or 
theft immediately to the owner of the products and relevant 
authorities; and
    (iv) Ensure that the 3PL can trace the receipt and outbound 
distribution of a product, as well as maintain supply and inventory 
records.
    (5) Shipment. The 3PL must establish, maintain, and follow written 
policies and procedures providing for the transportation of products in 
accordance with the following standards:
    (i) Products must be transported in a manner that will:
    (A) Protect against breakage, contamination, adulteration, and 
theft;
    (B) Prevent exposure to conditions that may compromise their 
quality and integrity; and
    (C) Ensure that deviations from storage requirements during 
transport are promptly identified, investigated, documented, and 
reported to the trading partner from whom the product was received and 
to the manufacturer to determine if further commercial distribution is 
appropriate.
    (ii) A 3PL that outsources transportation of products to a 
transportation provider, such as a common carrier, remains responsible 
for compliance with this part while the products are in transit to the 
intended trading partner. Arrangements for transportation by a 
transportation provider must be documented and carried out in 
accordance with the requirements in this section.
    (6) Distribution. The 3PL must establish, maintain, and follow 
written policies and procedures related to the distribution of products 
that:
    (i) Ensure products are distributed at appropriate temperatures and 
under appropriate conditions in accordance with the requirements in the 
products' labeling to preserve their identity, strength, quality, and 
purity; and
    (ii) Protect against diversion and against distribution of products 
that may be unfit for distribution.
    (d) Recalled products. The 3PL must establish, maintain, and follow 
written policies and procedures to support manufacturer recalls.
    (e) Preparing for foreseeable crises. The 3PL must establish, 
maintain, and follow written policies and procedures to prepare for, 
protect against, and address any reasonably foreseeable crises that 
could affect security or operations (such as strike, fire, or flood).
    (f) Products that are unfit for distribution. The 3PL must 
establish, maintain, and follow written policies and procedures for 
handling products that are adulterated, misbranded, or otherwise unfit 
for distribution, as well as returned products, that:
    (1) Require such products to be physically segregated from other 
products and dispositioned as directed by the applicable manufacturer, 
wholesale distributor, dispenser, or an authorized government agency 
and in accordance with all applicable State and Federal laws;
    (2) Identify a contact person responsible for communicating with 
the manufacturer, wholesale distributor, dispenser, or an authorized 
government agency regarding nonsaleable and returned products;
    (3) Include procedures to prevent products unfit for distribution 
from entering the supply chain through the 3PL's disposition of 
nonsaleable products; and
    (4) Require the 3PL to document the disposition of all nonsaleable 
and returned products, and maintain such records for inventory 
accountability.
    (g) Suspect product. The 3PL must establish, maintain, and follow 
written policies and procedures to quarantine or destroy a suspect 
product if directed to do so by the product's manufacturer, wholesale 
distributor, dispenser, or an authorized government agency.
    (h) Illegitimate product. The 3PL must establish, maintain, and 
follow written policies and procedures to store illegitimate product in 
a clearly defined, designated area from which the product may be 
dispositioned as directed by the respective manufacturer, wholesale 
distributor, dispenser, or an authorized government agency.

Sec.  205.13  Recordkeeping and document maintenance.

    (a) Maintenance, availability, and accuracy of records and written 
policies and procedures. All required records and written policies and 
procedures outlined in Sec.  205.12 must:
    (1) Be readily retrievable and made available to licensing 
authorities upon request;
    (2) Be securely stored from unauthorized access or modifications;
    (3) Contain only alterations signed and dated by the individual who 
made the alteration. Such alteration must preserve the original 
information and document the reason for the alteration; and
    (4) Accurately reflect the name of the 3PL as it appears on the 3PL 
facility's license, which must match the information that is reported 
to the Food and Drug Administration pursuant to the Food and Drug 
Administration reporting requirements at Sec.  205.15.
    (b) Record and document retention. (1) Except for the records 
listed in paragraph (b)(2) of this section, all records and written 
policies and procedures required to be maintained by this part must be 
retained for a period of 3 years.
    (2) Records of suspect and illegitimate products and destroyed, 
returned, and recalled products must be retained for a period of 6 
years.

Sec.  205.14   3PLs must provide upon request a list of trading 
partners.

    A list of all manufacturers, wholesale distributors, repackagers, 
and dispensers for which the 3PL conducts 3PL activities must be 
readily retrievable and made available to regulatory authorities upon 
request.

Sec.  205.15  Requirements for initial and annual reporting to the Food 
and Drug Administration.

    (a) Electronic reporting requirement. The 3PL must report 
electronically to the Food and Drug Administration using a secure 
mechanism in a format the Food and Drug Administration can review, 
process, and archive. Information reported will be included in the Food 
and Drug Administration's public database for 3PLs to the extent 
allowable by law.
    (b) Reporting periods--(1) Initial reporting. Any entity that owns 
or operates a facility that conducts 3PL activities must report to the 
Food and Drug Administration within 30 calendar days of obtaining an 
initial State or Federal 3PL license.
    (2) Annual reporting. Any entity that owns or operates a facility 
that is licensed to engage in 3PL activities must report to the Food 
and Drug Administration each calendar year between January 1 and March 
31.
    (c) Required information. Information reported for each 3PL 
facility separately

[[Page 6745]]

licensed by the licensing authority must include:
    (1) A complete list of States by which the 3PL facility is 
licensed, including the corresponding identification number and the 
expiration date of each such license;
    (2) Name of company as it appears on the license and full business 
address; and
    (3) All trade names or business names under which the 3PL conducts 
business.
    (d) Timing for significant disciplinary action reporting--(1) 
Initial reporting. The 3PL must report to the Food and Drug 
Administration any significant disciplinary actions that occurred in 
the previous 12 months.
    (2) Subsequent reporting. The 3PL must, within 30 calendar days of 
a final action taken by a State or Federal licensing authority, report 
significant disciplinary actions to the Food and Drug Administration.
    (e) Reporting voluntary withdrawal of a State license. The 3PL must 
report to the Food and Drug Administration that it has withdrawn its 
license in a State within 30 calendar days after such withdrawal, 
including the reasons for the voluntary withdrawal of licensure.

Sec.  205.16  Inspections.

    (a) A physical inspection of a facility owned, rented, or leased by 
a 3PL for conducting 3PL activities must be conducted prior to issuance 
of the initial license by the licensing authority.
    (1) Where the State is the licensing authority, the State may 
conduct the inspection or may accept an inspection by a third-party 
accreditation or inspection service approved by the State licensing 
authority. If the facility is out of state, the State may conduct the 
inspection or may accept an inspection by the State in which the 
facility is located.
    (2) Where the Food and Drug Administration is the licensing 
authority, the Food and Drug Administration may conduct the inspection 
or may accept an inspection by an organization approved by the Food and 
Drug Administration under Sec.  205.18.
    (b) Routine inspections must be conducted thereafter once every 3 
years by the licensing authority, a third-party approved organization 
or inspection service approved by the Food and Drug Administration 
under Sec.  205.18, or the State licensing the 3PL.
    (c) Records described in Sec.  205.12(a)(1) that are kept at the 
inspection site or that can be immediately retrieved by computer or 
other electronic means must be readily available for inspection during 
the retention period. Records kept at a central location apart from the 
inspection site and not electronically retrievable must be made 
available for inspection within 2 business days of a request by a State 
or Federal official, or sooner if necessitated by the duration of the 
inspection.
    (d) The 3PLs must permit the Federal or State licensing authority 
and third-party approved organizations or inspection services approved 
by the Food and Drug Administration or the State to enter and inspect 
their facilities and to audit their records and written operating 
procedures.

Subpart B--Approved Organizations for 3PLS

Sec.  205.17  Use of approved third-party organizations.

    (a) A third-party organization that has been approved by the Food 
and Drug Administration pursuant to Sec.  205.18 (or ``approved 
organization'' (AO)) may conduct licensure review of a 3PL's 
qualifications for licensure and may conduct inspections of 3PLs at the 
periodic intervals specified in Sec.  205.16, as directed by the Food 
and Drug Administration.
    (b) If an organization has been approved by the Food and Drug 
Administration to conduct licensure review, the AO will:
    (1) Conduct the licensure review, which consists of:
    (i) Reviewing all documents submitted in support of the application 
for 3PL licensure; and
    (ii) Inspecting the facility, as directed by the licensing 
authority;
    (2) Complete the licensure review within a timeframe not to exceed 
90 calendar days after receiving notice to conduct a licensure review 
from the Food and Drug Administration;
    (3) Based on the licensure review, write a detailed document 
including any findings and observations in support of the AO's 
recommendation to the Food and Drug Administration to grant or deny 
licensure; and
    (4) Send the original document to the Food and Drug Administration, 
with a copy to the 3PL, within 7 calendar days of completing the 
licensure review.
    (c) When conducting routine inspections at periodic intervals, the 
AO will:
    (1) Complete the inspection within a timeframe not to exceed 90 
calendar days after receiving notice to conduct an inspection from the 
Food and Drug Administration;
    (2) Based on the inspection, write a detailed document including 
any findings and observations in support of the AO's recommendation to 
the Food and Drug Administration regarding a 3PL's licensure; and
    (3) Send the original document to the Food and Drug Administration, 
with a copy to the 3PL, within 7 calendar days of completing the 
inspection.
    (d) To maintain approval, an organization approved by the Food and 
Drug Administration must:
    (1) Maintain records that support the AO's initial and continuing 
qualifications for approval for a minimum of 5 years;
    (2) Maintain the following records related to licensure reviews for 
a minimum of 5 years:
    (i) Supporting documentation reviewed as part of a licensure 
review;
    (ii) Licensure review and inspection reports;
    (iii) Correspondence with the Food and Drug Administration and the 
3PL associated with a licensure review; and
    (iv) Information on the identity and qualifications of all AO 
personnel who contributed to the licensure review, including a 
certification that such personnel have complied with all applicable 
requirements set forth in subpart A of this part and are free of any 
conflicts of interest, as set forth at 5 CFR part 2635 and 18 U.S.C. 
208.
    (e) Records maintained by the AO must:
    (1) Be readily retrievable and made available to Federal licensing 
authorities upon request;
    (2) Be maintained and protected in accordance with all applicable 
laws, including those regarding protection of personal identifying 
information and confidential commercial information;
    (3) Be secure from unauthorized access or modifications; and
    (4) Contain only alterations signed and dated by the individual who 
made the alteration. Such alteration must preserve the original 
information and document the reason for the alteration.
    (f) An AO must report to the Food and Drug Administration within 24 
hours of discovering any evidence or observations of potential 
violations found at a 3PL facility during an inspection of the facility 
that could pose an imminent threat to the public health. Reports must 
be made in the manner prescribed by the Food and Drug Administration.

Sec.  205.18  General qualifications of approved organizations.

    (a) To become and remain an AO, the organization and anyone 
employed by the organization, including contractors used by the 
organization:
    (1) Must not be a current Federal or State government employee;
    (2) Must not engage in prescription drug-related activities, 
excluding

[[Page 6746]]

participation in the Agency's AO program and related activities, but 
including and not limited to manufacturing, wholesale distribution, 
repackaging, relabeling, dispensing, or 3PL activities;
    (3) Must disclose to the Food and Drug Administration any 
participation or financial interest in entities that participate in the 
design, manufacture, promotion, or sale of articles or activities that 
are predominantly FDA-regulated or are expected to result in FDA-
regulated articles;
    (4) Must not be owned or controlled by, or have any organizational, 
material, or financial affiliation with, any of the entities engaged in 
manufacturing, wholesale distribution, repackaging, relabeling, 
dispensing, 3PL activities, or the design, manufacture, promotion, or 
sale of prescription drugs as defined in section 581(12) of the Federal 
Food, Drug, and Cosmetic Act;
    (5) Must enter and abide by a written agreement with the applicant 
before data and information otherwise exempt from public disclosure may 
be disclosed to the AO or a contractor;
    (6) Must operate in accordance with professional and ethical 
business practices and applicable legal requirements, which include, 
but are not limited to:
    (i) Protecting against conflicts of interest as set forth in 5 CFR 
part 2635 and 18 U.S.C. 208;
    (ii) Ensuring that the personnel employed or contracted by the AO 
who are working on licensure reviews have sufficient education, 
training, knowledge, and experience to conduct licensure reviews of 
3PLs;
    (iii) Treating received information, records, and reports that 
qualify as confidential commercial information as described at 5 U.S.C. 
552(b)(4) according to applicable requirements for such information;
    (iv) Maintaining appropriate security and protection, physical and 
electronic, of any information received in relation to licensure 
reviews to preserve confidentiality and ensure that the release of any 
information is limited to authorized disclosures to either the Food and 
Drug Administration or the 3PL facility;
    (v) Reporting information to the Food and Drug Administration and 
entities for which licensure reviews were conducted that accurately 
reflects data reviewed, inspectional observations made, and other 
matters that relate to compliance with the Federal Food, Drug, and 
Cosmetic Act; and
    (vi) Promptly responding to and attempting to resolve any 
complaints regarding activities for which it is approved by the Food 
and Drug Administration; and
    (7) Must establish and maintain policies, procedures, and 
documentation to demonstrate that, at the time of application and 
throughout their tenure as an AO, the applicant has satisfied and can 
continue to satisfy the requirements to qualify as an AO capable of 
assessing compliance with all 3PL requirements. Such policies, 
procedures, and documentation must include, but are not limited to:
    (i) AO program administration;
    (ii) Disciplinary actions and corrective measures;
    (iii) Recordkeeping and confidentiality;
    (iv) Use of contractors; and
    (v) Personnel qualifications and ongoing training.
    (b) If an AO elects to use contractors for licensure reviews or 
licensure review-related activities, the AO remains responsible for the 
work of the contractors at all times.
    (1) AOs that use contractors to conduct licensure reviews must 
abide by the confidentiality agreements between the Food and Drug 
Administration and the AO and have policies and procedures in place to 
ensure the contractor's continuing compliance with this part, as well 
as competence and qualifications to conduct licensure reviews. Such 
policies and procedures must ensure that contractors:
    (i) Meet the qualifications set forth in paragraph (a) of this 
section;
    (ii) Do not subcontract their licensure review duties, and that 
contractors are removed if such requirement is violated;
    (iii) Abide by the policies and procedures of the AO, as set forth 
in Sec.  205.19(b); and
    (iv) Complete and pass the same training required by the AO, as set 
forth in Sec.  205.19(c).
    (2) If an AO elects to use contractors to conduct licensure 
reviews, the AO must receive and keep a record of written consent from 
the 3PL to share confidential commercial information with contractors 
by which a licensure review is being conducted.
    (3) AOs that elect to use contractors must submit to the Food and 
Drug Administration a list of contractors used by the organization, 
accompanied by a statement from the organization certifying that such 
contractors meet the requirements of this subpart.

Sec.  205.19  Process and procedures for approval by the Food and Drug 
Administration.

    (a) Application. An application to become an AO must be completed 
and submitted electronically to the Food and Drug Administration in a 
format the Food and Drug Administration can review, process, and 
archive.
    (b) Required application information. Policies, procedures, and 
documentation as required by Sec.  205.18(a)(7) must accompany the 
application.
    (c) Training. Organizations must provide training as prescribed by 
the Food and Drug Administration, and any individual who conducts 
licensure reviews or supervises individuals who conduct licensure 
reviews is required to undergo and pass the prescribed training.
    (1) If an individual does not pass training, that person must wait 
30 days before retaking the training and may be required to show proof 
of additional education or experiential learning to demonstrate 
competence before retaking the training evaluation.
    (2) To maintain approval, individuals employed by the AO and 
conducting licensure reviews or supervising those who conduct licensure 
reviews must undergo and pass annual training as prescribed by the Food 
and Drug Administration. Failure to complete and pass annual training 
may result in suspension of approval of the AO.
    (3) The Food and Drug Administration may require additional 
training. If such additional training is required, AOs will be given a 
set time period during which training must be completed and passed to 
maintain approval.
    (d) Auditing. Prior to conducting licensure reviews, an AO must 
undergo an onsite audit by the Food and Drug Administration. The Food 
and Drug Administration may also conduct random, periodic audits, as 
well as for-cause audits, of an AO, as set forth in paragraph (o) of 
this section.
    (e) Duration of approval and renewal process. (1) The Food and Drug 
Administration approval to conduct licensure reviews is valid for a 
period of 5 years.
    (2) AOs may submit a renewal application to the Food and Drug 
Administration 6 months prior to the expiration date, but no later than 
3 months prior to the expiration date, to renew the approval.
    (i) If a renewal application is submitted less than 3 months before 
the date of expiration, the AO's approval will expire if approval is 
not renewed prior to the date of expiration.
    (ii) Upon expiration of the AO's approval, the AO must cease 
conducting any licensure review or inspection-related activities.

[[Page 6747]]

    (f) Denial of approval. If an organization does not meet all of the 
Food and Drug Administration's standards detailed in Sec. Sec.  205.17 
and 205.18 for becoming an AO, the Food and Drug Administration will 
deny approval of the application in writing. Requests for review and 
reconsideration of a denial of approval must be submitted to the Food 
and Drug Administration within 30 calendar days of the date of the Food 
and Drug Administration's decision to deny the application. If, upon 
reconsideration, the Food and Drug Administration denies the 
applicant's request for approval, the Food and Drug Administration will 
provide the applicant written notice of the denial and an opportunity 
to appeal pursuant to Sec.  10.75 of this chapter.
    (g) Suspension of approval after notice and opportunity to request 
a hearing. (1) The Food and Drug Administration may suspend approval of 
an organization after an opportunity to request a hearing when there is 
a reasonable probability that the organization's noncompliance will 
negatively impact public health.
    (2) If an AO fails to maintain the Food and Drug Administration's 
standards pursuant to Sec. Sec.  205.17 and 205.18, the Food and Drug 
Administration will give written notice of the intent to suspend the 
organization's approval, including the grounds for the suspension, and 
the AO will have 30 days to provide additional information to the Food 
and Drug Administration for reconsideration.
    (3) If, upon reconsideration, the Food and Drug Administration 
still believes the AO's approval should be suspended, the Food and Drug 
Administration will issue the AO a written formal notice of intent to 
suspend, along with notice of the opportunity to request a hearing 
pursuant to part 16 of this chapter.
    (4) An AO that wishes to request a hearing has 10 calendar days 
after the date of the formal notice of intent to suspend to submit a 
written notice of participation and request for a hearing. An AO that 
fails to submit a written notice of participation and request for a 
hearing within 10 calendar days from the date of the notice waives the 
opportunity for a hearing.
    (5) A suspended AO must notify any 3PLs under a pending licensure 
review by the AO of the AO's suspension within 7 calendar days.
    (h) Immediate suspension of approval. (1) When there is a 
reasonable probability that the organization's noncompliance will cause 
imminent and serious adverse health consequences or death to humans, 
the Food and Drug Administration will suspend an AO's approval 
effective immediately.
    (2) In such a situation, the Food and Drug Administration will 
provide the AO a written notice of immediate suspension, along with 
notice and opportunity to request a hearing pursuant to part 16 of this 
chapter within 14 calendar days of the AO's request for such hearing.
    (3) An AO that wishes to request a hearing has 10 calendar days 
after the date of the formal notice of suspension to submit a written 
notice of participation and request for a hearing. An AO that fails to 
submit a written notice of participation and request for a hearing 
within 10 calendar days waives the opportunity for a hearing.
    (i) Reinstatement of approval. (1) An organization's approval may 
be reinstated if the Food and Drug Administration determines that the 
suspended organization has rectified the issues leading to the 
suspension and can meet the standards set forth in this subpart. The 
organization must rectify the issues and come into compliance with the 
standards set forth in this subpart within 1 year from the date of 
suspension. If the issues have not been rectified within 1 year, or if 
the organization otherwise has failed to come into compliance with the 
standards set forth in this subpart within such time period, the Food 
and Drug Administration may revoke the AO's approval subject to the 
provisions of this part.
    (2) An organization whose approval has been reinstated on a 
conditional basis will be subject to a 3-year probationary period, and 
if any material deficiencies arise during that period, the 
organization's approval will be revoked.
    (j) Revocation of approval. (1) The Food and Drug Administration 
may revoke approval of an organization whose approval has been 
suspended pursuant to paragraphs (g) and (h) of this section:
    (i) If an organization fails to demonstrate its intent to rectify 
the issues leading to the suspension within 6 months from the date of 
suspension; or
    (ii) If the Food and Drug Administration determines that the 
organization failed to rectify the issues leading to the suspension to 
the Agency's satisfaction within 1 year of the date of suspension.
    (2) The Food and Drug Administration will give written notice of 
the intent to revoke the organization's approval, including the grounds 
for the revocation, and an opportunity to request a hearing pursuant to 
part 16 of this chapter.
    (3) The AO must submit a written notice of participation and 
request a hearing within 10 calendar days after the date of the notice 
of revocation. An AO that fails to submit a written notice of 
participation and request for hearing within 10 calendar days waives 
the opportunity for a hearing.
    (4) An organization whose approval has been revoked that wishes to 
reapply to be an AO must submit a new application to the Food and Drug 
Administration.
    (k) Requests for reconsideration of Agency decision. (1) The Food 
and Drug Administration will follow the process outlined at Sec.  10.75 
of this chapter to review matters relating to denial of approval, 
including review of the organization's application.
    (2) The Food and Drug Administration will follow the process 
outlined at part 16 of this chapter to review matters relating to a 
suspension or revocation action, including review of the organization's 
application and administrative file.
    (3) The Food and Drug Administration's decision after a request for 
reconsideration of denial, suspension, or revocation constitutes a 
final Agency action under 5 U.S.C. 702.
    (l) Voluntary withdrawal of approval. (1) An organization wishing 
to voluntarily withdraw its approval, including but not limited to when 
an AO goes out of business, must notify the Food and Drug 
Administration in writing at least 6 months prior to the date the 
organization intends for the withdrawal to become effective.
    (i) If an AO determines it will be withdrawing its approval with 
the Food and Drug Administration in less than 6 months, it must notify 
the Food and Drug Administration immediately of its intent to withdraw, 
and such notification must inform the Food and Drug Administration of 
the date the organization will cease business operations.
    (ii) [Reserved]
    (2) No later than 7 calendar days after notifying FDA, the 
organization must notify any facilities with pending reviews that it 
intends to withdraw its approval with the Food and Drug Administration 
and must provide the date on which the withdrawal is effective.
    (m) AO-required notifications to 3PLs. The AO must, within 7 
calendar days of the date of suspension, revocation, or voluntary 
withdrawal of approval, notify those 3PL facilities that have pending 
licensure reviews of the AO's suspension or revocation. This

[[Page 6748]]

notification must inform the 3PL facility that it must apply for 
licensure review with another AO, or the Food and Drug Administration 
if no other AO is available to conduct the licensure review.
    (n) Change of operation or ownership. (1) The AO must report to the 
Food and Drug Administration within 30 calendar days any changes to the 
information submitted in the application for approval.
    (2) Approval is not transferable.
    (i) Changes in ownership of an AO require the organization to 
submit a new application to the Food and Drug Administration.
    (ii) Such application must be submitted to the Food and Drug 
Administration no later than 30 calendar days prior to the date of the 
change of ownership.
    (iii) No later than 30 calendar days before the date of the change 
of ownership, the AO must notify any 3PL facilities with pending 
applications of the pending change in ownership.
    (iv) On the date the change of ownership takes place, the original 
approval is void.
    (o) Monitoring by the Food and Drug Administration. (1) AOs are 
subject to audits by the Food and Drug Administration to ensure 
compliance with the Food and Drug Administration's requirements for 
approval.
    (2) If an AO refuses to cooperate with the Food and Drug 
Administration's audit, the organization's approval may be suspended 
pursuant to paragraph (g)(1) of this section.

Subpart C--Wholesale Distributors Licensure Standards

Sec.  205.20  Requirement that prescription drug wholesale distributors 
be licensed.

    (a) No wholesale distributor may engage in wholesale distribution 
of a prescription drug unless the person is licensed:
    (1) By the State from which the drug is distributed; or
    (2) If the State from which the drug is distributed has not 
established a licensure requirement in accordance with the standards 
set forth in this part, by the Food and Drug Administration; and
    (3) If the drug is distributed interstate, by the State into which 
the drug is distributed if such licensure is required by that State.
    (b) Any license issued or renewed pursuant to this section will 
expire 2 years after the date on which the license was issued. A 
wholesale distributor may submit a renewal application up to 90 
calendar days before the date of expiration. A license will be 
considered valid during any period of the administrative delay on the 
part of the licensing authority, if the wholesale distributor timely 
submitted the renewal application.

Sec.  205.21  Surety bond requirement.

    (a) Surety bond compliance. No wholesale distributor will be 
licensed under this section unless the wholesale distributor has 
furnished a bond, or other equivalent means of security acceptable to 
the State if the State is the licensing authority, that complies with 
the requirements of this section.
    (b) Surety bond requirements. (1) For the issuance or renewal of a 
wholesale distributor license, an applicant that is not a government-
owned and -operated wholesale distributor must submit to the licensing 
authority a surety bond from an authorized surety company of $100,000 
or other equivalent means of security acceptable to the State. The term 
of the initial surety bond must be effective on the date that the 
application is submitted to the licensing authority.
    (2) The licensing authority may accept a surety bond from an 
authorized surety company in the amount of $25,000 if the annual gross 
receipts of the previous tax year for the wholesale distributor are 
$10,000,000 or less.
    (3) If a wholesale distributor can provide evidence that it 
possesses the required bond in the State where the wholesale 
distributor is located, the requirement for a bond in another State for 
a non-resident wholesale distributor license will be waived.
    (c) Terms of the surety bond. (1) The terms of the bond submitted 
by a wholesale distributor must on its face reflect the requirements of 
this section, including meeting the requirements of liability coverage 
($100,000 or $25,000, as applicable), as well as the responsibilities 
of the surety company and wholesale distributor as set forth in this 
section.
    (2) The bond must be continuous and remain in full force and 
effect, running concurrently with the license period and for every 
succeeding licensing period for which the wholesale distributor may be 
licensed. The bond must remain in full force and effect until 1 year 
after the license expires, after which liability for license 
administrative fees ceases except as to any liability or indebtedness 
incurred or accrued before the termination date.
    (3) The bond must guarantee that after receiving written notice 
from the licensing authority containing sufficient evidence to 
establish the surety's liability under the bond, the surety company 
will pay within 30 calendar days any administrative fines or penalties 
imposed by the licensing authority on the wholesale distributor holding 
the surety bond in that State. This includes any fees and costs 
incurred by the licensing authority regarding that license authorized 
by law and which the wholesale distributor fails to pay within 30 
calendar days after the fine or costs become final. Any such claim may 
be made directly to the surety company and need not be preceded by the 
filing of any action in a proper court.
    (4) The licensing authority may make a claim against the surety 
bond until 1 year after the date of expiration on the wholesale 
distributor's license or until 60 calendar days after any 
administrative or legal proceeding, which involved the wholesale 
distributor, is concluded, including any appeal, whichever occurs 
later.
    (d) Cancellation of a bond and lapse of surety bond coverage. (1) A 
wholesale distributor may cancel its surety bond and must provide 
written notice 30 calendar days before the effective date of the 
cancellation to all applicable licensing authorities and the surety 
company.
    (2) Cancellation of a surety bond is grounds for suspension of the 
wholesale distributor's license unless the wholesale distributor 
provides a new bond before the effective date of the bond's 
cancellation. If a new surety bond is provided before the effective 
date of the bond's cancellation, the liability of the surety company 
continues until the cancellation date. Otherwise, the liability of the 
surety company continues for 1 year after the date of cancellation, 
after which liability ceases except as to any liability or indebtedness 
incurred or accrued before the cancellation date.
    (3) The wholesale distributor must immediately notify the licensing 
authority if there is a lapse in the wholesale distributor's surety 
coverage.
    (4) If the licensing authority discovers a lapse in bond coverage 
that has not been previously disclosed by the wholesale distributor, 
the wholesale distributor's license will be suspended pursuant to Sec.  
205.30.
    (e) Actions under the surety bond. The bond must provide that 
actions under the bond may be brought by a State or Federal licensing 
authority.
    (f) Required surety company information on the surety bond. The 
bond must provide the surety company's name, street address or post 
office box number, city, State, and zip code.

[[Page 6749]]

    (g) Change of surety company. A wholesale distributor that obtains 
a replacement surety bond from a different surety company to cover the 
remaining term of a previously obtained bond must submit the new surety 
bond to the licensing authority 30 calendar days prior to the 
expiration of the previous surety bond. There must be no gap in the 
coverage of the surety bond periods.
    (h) Parties to the surety bond. The surety bond must name the 
wholesale distributor as Principal, the licensing authority as obligee, 
and the surety company (and its heirs, executors, administrators, 
successors, and assignees, jointly and severally) as surety.

Sec.  205.22  General application requirements for licensure.

    (a) Applicant requirements. An individual who submits an 
application on behalf of a wholesale distributor for a license issued 
pursuant to this subpart must:
    (1) Be 18 years of age or older;
    (2) Submit an affidavit that their ownership or management of or 
employment by the entity would not preclude the entity from receiving 
or maintaining a license under Sec.  205.25(a);
    (3) Submit all application information required in the form 
required by the licensing authority; and
    (4) Pay any licensing fees that are required by the licensing 
authority pursuant to section 503(e)(3) of the Federal Food, Drug, and 
Cosmetic Act.
    (b) Surety bond requirement. The wholesale distributor must furnish 
a bond, or other equivalent means of security acceptable to the State, 
with the application for licensure in accordance with the surety bond 
requirements in Sec.  205.21.
    (c) General requirements for licensure application. The State or 
Federal licensing authority will require the following information from 
each wholesale distributor as part of the initial application for the 
license described in this section and as part of any renewal of such 
license:
    (1) The name and title of the individual who submits the 
application for licensure on behalf of the wholesale distributor;
    (2) The name of the wholesale distributor as it should appear on 
the license and the full business address and telephone number of the 
wholesale distributor;
    (3) All trade or business names used by the wholesale distributor, 
including prior trade or business names, within the past 7 years;
    (4) Name, email address, and telephone number of the designated 
representative or facility manager for the wholesale distributor;
    (5) The type of ownership or operation of the business entity, such 
as a partnership, corporation, limited liability company, or sole 
proprietorship;
    (6) The name of any owners or operators of the wholesale 
distributor, including:
    (i) If a sole proprietorship, the full name of the sole proprietor 
and the name of the business entity;
    (ii) If a partnership, the name of each partner and the name of the 
partnership;
    (iii) If a corporation, the corporate names, the names of any 
subsidiaries and affiliates, the name and title of each corporate 
officer and director, and the State of incorporation; and
    (iv) If a limited liability company, the name of the limited 
liability company, including any subsidiaries and affiliates, the name 
of each member, and the State in which the limited liability company 
was organized;
    (7) Whether the wholesale distributor has ever been convicted of a 
felony relating to wholesale drug distribution, a felony conviction of 
section 301(i) or (k) of the Federal Food, Drug, and Cosmetic Act, or a 
felony conviction of 18 U.S.C. 1365, relating to product tampering, 
together with details concerning any such events; and
    (8) Whether the wholesale distributor has received any citations 
for violating requirements for licensure within the past 7 years or has 
received any significant disciplinary actions within the past 7 years 
that presented a threat of serious adverse health consequences or death 
to humans, together with details concerning any such events.
    (d) General requirements for licensure renewal. To renew a license, 
the wholesale distributor must submit the following to the renewing 
licensing authority:
    (1) Certification that the wholesale distributor has continued to 
meet all the standards and complied with the requirements in this 
subpart since the previous license was issued; and
    (2) Information about any changes to information previously 
submitted under this section, or Sec.  205.21, or Sec.  205.23(c) for 
which a notification was not already submitted to the licensing 
authority under Sec.  205.24.
    (e) License availability requirement. The wholesale distributor 
must maintain its license in a readily retrievable manner and must 
permit inspection of the license by any official, agent, or employee of 
the licensing authority or of any Federal, State, or local agency 
engaged in enforcement of laws relating to the distribution of 
prescription drugs.

Sec.  205.23  Federal licensure process.

    (a) Procedures for filing an FDA application for a wholesale 
distributor license. (1) All wholesale distributors must electronically 
submit an application to the Food and Drug Administration for a license 
to engage in wholesale distribution if the State does not have a 
licensing program for wholesale distributors consistent with the 
standards set forth in this section. The application must include the 
information in Sec. Sec.  205.21 and 205.22, along with a surety bond 
and supporting documentation that demonstrates the applicant's ability 
to comply with requirements intended to ensure the continued safety, 
identity, strength, quality, and purity of the prescription drugs.
    (2) If one or more organizations have been approved by the Food and 
Drug Administration under Sec.  205.32 to conduct inspections of 
wholesale distributors, the wholesale distributor will indicate in its 
application to the Food and Drug Administration which AO it prefers to 
conduct its inspection.
    (3) If there is no organization approved by the Food and Drug 
Administration to conduct inspections for wholesale distributors, the 
Food and Drug Administration will conduct the inspection, as described 
in Sec.  205.28(b).
    (4) The applicant, or the applicant's agent or other authorized 
official, must sign the application.
    (5) An application for a wholesale distributor license will not be 
considered as filed until the Food and Drug Administration has received 
all required information and fees.
    (b) Determination that licensing requirements have been met. The 
Food and Drug Administration, not an AO, will determine whether the 
wholesale distributor meets all the applicable requirements set forth 
in this part.
    (c) Notification of easily correctable deficiencies. The Food and 
Drug Administration will make reasonable efforts to promptly 
communicate to applicants easily correctable deficiencies found in an 
application when those deficiencies are discovered. The Food and Drug 
Administration will also promptly inform applicants if more data or 
information is needed to facilitate the Agency's review.
    (d) Issuance of wholesale distributor license by FDA. Approval of a 
wholesale distributor license application or issuance of a wholesale 
distributor license constitutes a determination by the Food and Drug 
Administration that, based upon information received, the

[[Page 6750]]

wholesale distributor meets the applicable requirements to be licensed 
under sections 503(e)(1) and 583 of the Federal Food, Drug, and 
Cosmetic Act. The Food and Drug Administration will approve an 
application and send the applicant an approval letter and license 
certificate if none of the reasons in Sec.  205.30(a)(1) for refusing 
to approve the application applies. Applicable requirements for 
wholesale distributors to engage in wholesale distribution must include 
but not be limited to the good storage practices set forth under Sec.  
205.26. A license is effective on the date of issuance of the license 
certificate.
    (e) Validity of a wholesale distributor license. Licenses issued to 
a wholesale distributor will remain valid until the date of expiration, 
unless suspended or revoked.

Sec.  205.24  Changes to information, operation, location, or ownership 
of a wholesale distributor.

    (a) Any change to any information required in this subpart, 
including changes to any information required pursuant to Sec. Sec.  
205.21, 205.22, and 205.25, must be submitted electronically to the 
licensing authority within 30 calendar days after such change is 
effective, except where otherwise provided in this subpart.
    (b) Any change in the location of a wholesale distributor at which 
wholesale distribution occurs will require an inspection of the new 
facility prior to the wholesale distributor beginning operations at the 
new facility.
    (1) On the date the change of location takes place, the wholesale 
distributor may not engage in wholesale distribution at the original 
facility.
    (2) [Reserved]
    (c) Any change in the person engaged in wholesale distribution will 
require a new license prior to beginning operations.
    (1) The application for a new license required by Sec.  205.23 must 
be submitted no later than 30 calendar days prior to the change in 
ownership.
    (2) A new inspection of the wholesale distributor will be performed 
within a reasonable time.
    (3) A wholesale distributor can continue to operate under the 
original license for 30 calendar days after the change of ownership 
occurs or until the license application of the new owner is approved, 
whichever is sooner.

Sec.  205.25  Prohibited persons and qualifications for key personnel.

    (a) A wholesale distributor is prohibited from obtaining or 
maintaining licensure if the wholesale distributor has been:
    (1) Convicted of any felony for violation of section 301(i) or (k) 
of the Federal Food, Drug, and Cosmetic Act;
    (2) Convicted of any felony violation of 18 U.S.C. 1365 relating to 
product tampering; or
    (3) Cited on two or more occasions within the previous 7 years for 
violating one or more of the requirements of section 583 or section 
503(e) of the Federal Food, Drug, and Cosmetic Act or State 
requirements for licensure in such a way that presents a threat of 
serious adverse health consequences or death to humans.
    (b) All key personnel must have the education, background, 
training, and experience necessary to perform his or her assigned 
functions.
    (c) Licensure may also be denied when an applicant wholesale 
distributor or any of their key personnel has been:
    (1) Found to have delayed or otherwise impeded an inspection by the 
Federal or State licensing authority or an approved third-party 
inspector, or an inspector, after reasonable efforts, was unable to 
gain access to an establishment or a location to carry out the 
inspection required under Sec.  205.28, as permitted by section 704(a) 
of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 374(a));
    (2) Found to have omitted material information or furnished false 
or fraudulent information in an application made about the distribution 
of prescription drugs; or
    (3) Subject to licensure suspension or revocation by Federal, 
State, or local government for any license currently or previously held 
by the applicant for the manufacture or distribution of any drugs, 
including controlled substances.
    (d) The wholesale distributor must maintain a list of officers, 
directors, facility managers, designated representatives, and other key 
personnel in charge of wholesale distribution, including storage and 
handling, and include a description of their duties and a summary of 
their qualifications. This list must be available for review by the 
State or Federal licensing authority.
    (e) The wholesale distributor must establish and implement written 
policies and procedures designed to ensure that the qualifications of 
key personnel as required in this section are met, maintained, and 
documented. These written policies and procedures must be available for 
review by the State or Federal licensing authority, as provided in 
Sec.  205.27. These policies and procedures must identify the personnel 
at the wholesale distributor's facility who are responsible for the 
following actions:
    (1) Implementing and maintaining all facility and personnel 
requirements;
    (2) Ensuring that the facility complies with all licensure and 
reporting requirements; and
    (3) Ensuring that key personnel receive initial and regular 
training to ensure competence relevant to their job functions.
    (f) In addition to the qualifications for key personnel in 
paragraphs (a) through (e) of this section, a facility manager or 
designated representative must have the following qualifications to 
carry out those responsibilities:
    (1) Serves as the facility manager or designated representative of 
such facility manager for only one facility at any one time;
    (2) Is actively involved in and responsible for managing the daily 
operations of the wholesale distributor facility; and
    (3) Remains responsible for all facility manager or designated 
representative duties that are delegated to other personnel at the 
facility.
    (g) Any facility manager or designated representative, prior to 
their association, employment, or contracting with the wholesale 
distributor as a facility manager or designated representative, must 
submit a full set of fingerprints for purposes of conducting local and 
national criminal background checks. The results of the background 
checks must demonstrate no history of criminal convictions pursuant to 
paragraph (a) of this section.

Sec.  205.26  National standards for the storage and handling of 
prescription drugs for wholesale distribution.

    Any facility owned, rented, or leased by a wholesale distributor 
for engaging in wholesale distribution must meet the facility 
requirements in paragraphs (a) and (b) of this section, and the 
wholesale distributor must establish, maintain, and follow policies and 
procedures as set forth in paragraph (c) of this section.
    (a) A wholesale distributor to which a license has been issued in 
the same name and at the same address as another authorized trading 
partner, such as a 3PL, must maintain separate systems and processes 
for the distribution of drugs that are specific to the wholesale 
distributor.
    (b) The facility the wholesale distributor owns, leases, or rents 
for purposes of engaging in wholesale distribution must be suitable for 
the storage and handling of prescription drugs, as demonstrated by the 
following:
    (1) General requirements. The facility is:
    (i) Not a personal residence;

[[Page 6751]]

    (ii) Of a suitable size, construction, and configuration designed 
to ensure proper distribution, including storage and handing, of all 
prescription drugs stored at or distributed from the facility;
    (iii) Of a suitable size, construction, and configuration to 
facilitate cleaning, maintenance, and proper wholesale distribution 
operations;
    (iv) Maintained in a clean and orderly condition, free from 
infestation of any kind;
    (v) Equipped with sufficient lighting, ventilation, temperature, 
sanitation, humidity, space, equipment, and secure conditions for 
prescription drug storage; and
    (vi) Equipped with clearly defined designated areas that separate 
saleable prescription drugs from prescription drugs that are unfit for 
distribution.
    (2) Security of premises. The facility must be equipped with 
adequate security to prevent breaches. Adequate security includes 
ensuring that:
    (i) The facility is secure from unauthorized entry;
    (ii) Access from outside the premises is limited, well controlled, 
and documented;
    (iii) The outside perimeter of the premises is well lit;
    (iv) Entry into areas where prescription drugs are held is limited 
to key personnel who possess appropriate and verifiable experience and 
training necessary to safely and lawfully engage in the distribution of 
prescription drugs, as described in Sec.  205.25, and to staff for 
purposes of maintenance and cleaning; and
    (v) The facility is equipped with a security system that protects 
against theft and diversion of prescription drugs and accidental or 
unsanctioned modifications to data, including an alarm system to detect 
and notify appropriate personnel of any unauthorized entry.
    (3) Equipment. The facility must have equipment that ensures 
prescription drugs are properly stored, including cold storage, 
refrigerators, temperature and humidity devices, and air handling 
units. All equipment utilized must be maintained in good repair and 
must be suitable for the distribution, including receipt, storing, and 
handling, warehousing, holding, displaying, or transporting of 
prescription drugs, as demonstrated by the following:
    (i) All equipment must be installed, maintained, and repaired by 
qualified individuals following written procedures established by the 
wholesale distributor. The wholesale distributor must be able to 
demonstrate that all equipment has been calibrated, as applicable, and 
validated at regular intervals to achieve the intended results 
accurately, consistently, and in a manner that can be reproduced by 
qualified individuals following the wholesale distributor's written 
procedures. Such actions must be documented;
    (ii) Appropriate manual, electromechanical, or electronic 
temperature and humidity recording equipment or logs must be used to 
document proper storage of prescription drugs; and
    (iii) Monitoring equipment must immediately alert appropriate 
personnel of any deviations from the required storage conditions.
    (4) Facility assessments. Facility assessments, including 
temperature mapping and other assessments designed to ensure 
prescription drugs are properly stored in accordance with their 
labeling, must be regularly conducted and documented.
    (c) Every wholesale distributor must establish, maintain, and 
follow written policies and procedures for each of the requirements 
described in this section that are relevant to the scope of the 
wholesale distributor's activities involving prescription drugs at the 
facility. The written policies and procedures must describe a system by 
which the wholesale distributor will monitor all processes, and, if 
deviations occur, promptly document and investigate to determine the 
root cause of the deviation. If a wholesale distributor uses a 
contractor to carry out any of its duties, the wholesale distributor 
remains responsible for compliance with this subpart and must ensure 
that the contractor abides by the applicable written policies and 
procedures. The written policies and procedures must clearly describe 
the responsibilities of the wholesale distributor and any contractors 
used to fulfill the wholesale distributor's duties. Such arrangements 
must be documented and carried out in accordance with the requirements 
of this section.
    (1) Authorized trading partners. The wholesale distributor must 
ensure that it conducts business only with other authorized trading 
partners as defined in section 581(2) and (23) of the Federal Food, 
Drug, and Cosmetic Act.
    (2) Facility and equipment maintenance management. The wholesale 
distributor must ensure that the facility requirements in paragraph (b) 
of this section are met.
    (3) Transportation. The wholesale distributor must ensure 
prescription drugs are transported in a manner that:
    (i) Protects against breakage, contamination, adulteration, and 
theft;
    (ii) Prevents exposure to conditions that may compromise 
prescription drug identity, strength, quality, or purity; and
    (iii) Ensures that deviations from storage requirements during 
transport are identified, investigated, documented, corrected, and 
reported no later than 24 hours after discovery to the authorized 
trading partner from which the prescription drug was received, and to 
the manufacturer to determine if further commercial distribution is 
appropriate.
    (4) Examination of shipping containers. The wholesale distributor 
must ensure that all shipping containers are examined in accordance 
with the following standards:
    (i) Incoming shipments. Upon receipt, each shipping container must 
be visually examined for identity and to prevent the acceptance of 
prescription drugs that are unfit for distribution. This examination 
must be adequate to detect conditions that would suggest that the 
prescription drug may be unfit for distribution, such as alterations 
made or damage to the shipping container.
    (ii) Outgoing shipments. Each outgoing shipment must be properly 
inspected for identity of the prescription drug to ensure that there is 
no shipment of a prescription drug that has been damaged in storage or 
held under improper conditions and to prevent the introduction or 
further shipment of any prescription drug that is unfit for 
distribution, including through the wholesale distributor's processing 
of returned or recalled drugs.
    (5) Storage and handling. The wholesale distributor must ensure 
that prescription drugs are stored at appropriate temperatures and 
under appropriate conditions in accordance with the drugs' labeling, 
except that if no storage requirements are established in the drug's 
labeling, the drug may be held at controlled room temperature to 
preserve the drug's identity, strength, quality, and purity.
    (i) Inventory management. The wholesale distributor must:
    (A) Ensure compliance with the requirements of section 582(c) of 
the Federal Food, Drug, and Cosmetic Act;
    (B) Ensure that the facility's stock is inspected regularly to 
protect against drug diversion and distribution of prescription drugs 
that are unfit for distribution;
    (C) Investigate, document, and correct any stock irregularities, 
including theft, loss, or diversion of prescription drugs, in 
accordance with section 582(c) of the Federal Food, Drug, and Cosmetic 
Act, as applicable;
    (D) Ensure that any prescription drug that appears to be unfit for 
distribution

[[Page 6752]]

is removed from saleable stock and handled appropriately according to 
the requirements in paragraphs (c)(5)(ii) through (iv) of this section;
    (E) Immediately report any confirmed losses or theft of 
prescription drugs to the manufacturer of the drug and the Food and 
Drug Administration; and
    (F) Ensure that records related to the actions required in 
paragraphs (c)(5)(i) through (iv) of this section are kept according to 
Sec.  205.27.
    (ii) Handling of prescription drugs. The wholesale distributor must 
ensure that only prescription drugs fit for distribution are further 
distributed or transferred.
    (A) Any prescription drug that appears to be unfit for distribution 
must be stored in a secure area clearly defined for such use and 
physically segregated from saleable drugs, or electronically 
segregated, if appropriate, until the wholesale distributor determines 
by thorough examination that such drugs are fit for human use or 
nonsaleable.
    (B) Any prescription drug found to be adulterated, misbranded, or 
otherwise unfit for distribution must be stored in a secure area 
clearly defined for such use and physically or electronically 
segregated from saleable drugs until they are returned to the supplier 
or destroyed in accordance with the standards in paragraph (c)(6) of 
this section.
    (C) If a prescription drug is determined to be a suspect or 
illegitimate product, those suspect or illegitimate products must be 
handled according to the requirements of section 582(c)(4) of the 
Federal Food, Drug, and Cosmetic Act.
    (iii) Returned prescription drugs. All returned prescription drugs 
must be stored in a secure area clearly defined for such use and 
physically segregated from saleable prescription drugs, until the 
wholesale distributor determines by thorough examination that such 
drugs are saleable or nonsaleable.
    (A) Saleable returns. Prescription drugs may be returned to 
saleable stock only if the conditions under which the drug has been 
returned do not cast doubt on the drug's safety, identity, strength, 
quality, or purity. In determining whether the conditions under which a 
drug has been returned cast doubt on the drug's safety, identity, 
strength, quality, or purity, the wholesale distributor must consider, 
among other things, the conditions under which the drug has been held, 
stored, or shipped.
    (B) Nonsaleable returns. If the conditions under which the 
prescription drug has been returned cast doubt on the drug's safety, 
identity, strength, quality, or purity, drugs may be returned to the 
manufacturer or repackager, to the wholesale distributor from which 
such drug was purchased, or to an individual acting on behalf of such 
an entity, including a returns processor, or may be destroyed in a 
timely manner and in accordance with paragraph (c)(6) of this section 
and all applicable Federal and State laws.
    (iv) Recalled drugs. Recalled prescription drugs must be handled as 
instructed by the manufacturer in the recall notice, which may require 
that the recalled drugs be stored in a secure area clearly defined for 
such purpose and physically segregated from saleable drugs until they 
are returned to the manufacturer or repackager, to the wholesale 
distributor from which such drug was purchased, or to an individual 
acting on behalf of such an entity, including a returns processor, or 
destroyed in accordance with the standards in paragraph (c)(6) of this 
section.
    (6) Disposition of drugs. The wholesale distributor must establish, 
maintain, and follow written policies and procedures that ensure that 
prescription drugs removed from the pharmaceutical distribution supply 
chain because they are determined to be unfit for distribution are 
retained for further examination, returned to the manufacturer or 
repackager, returned to the wholesale distributor from which such drug 
was purchased, or returned to an individual acting on behalf of such an 
entity, including a returns processor, or destroyed in accordance with 
all applicable Federal and State laws and the following standards:
    (i) Quarantine and transfer for further examination. The wholesale 
distributor must establish and maintain records for prescription drugs 
retained in quarantine and subsequently transferred to a manufacturer 
or regulatory or law enforcement agency for further additional physical 
examination or laboratory analysis.
    (ii) Return the drugs. The wholesale distributor must establish and 
maintain records for the return of prescription drugs to the 
manufacturer, repackager, or wholesale distributor from which the 
wholesale distributor acquired the drugs, including when returned using 
a returns processor or reverse logistics provider to return the drugs.
    (iii) Destroy. When prescription drugs are authorized for 
destruction, the wholesale distributor must:
    (A) Destroy all containers, labels, and packaging to ensure that 
such items cannot be used in counterfeiting activities;
    (B) Ensure that the destruction of prescription drugs, containers, 
labels, and packaging are witnessed; and
    (C) Establish and maintain records for destroyed drugs and the 
witnessing thereof.
    (7) Preparation for foreseeable crises. The wholesale distributor 
must prepare for, protect against, and address any reasonably 
foreseeable crises that could affect security or operation of the 
facility such as strike, fire, flood, or other natural disaster, or 
other situations of local, State, or national emergency.

Sec.  205.27  Standards for the establishment and maintenance of 
records of the distribution of prescription drugs.

    (a) Required records. Required records include, but are not limited 
to, the following:
    (1) Documentation pertaining to distribution, including storage and 
handling, security, inventory, transport, and shipping of prescription 
drugs, including written policies and procedures for identifying, 
recording, and reporting confirmed losses, thefts, and diversions, and 
prescription drugs that are unfit for distribution;
    (2) All policies, procedures, instructions, contracts, data, 
inspection reports, and any documentation related to compliance with 
this subpart; and
    (3) Invoices, purchase orders, packing slips, shipping records, and 
any other records of the distribution of prescription drugs.
    (b) Maintenance, availability, and accuracy of records. Records 
must:
    (1) Accurately reflect the name of the wholesale distributor as it 
appears on the wholesale distributor license and must match the 
information that is reported to the Food and Drug Administration 
pursuant to the Food and Drug Administration reporting requirements at 
Sec.  205.29;
    (2) Be readily retrievable and made available to regulatory 
authorities upon request;
    (3) Be securely stored and protected from unauthorized access or 
modifications; and
    (4) Contain only alterations signed and dated by the individual who 
made the alteration. Such alteration must preserve the original 
information and document the reason for the alteration.
    (c) Written policies and procedures. Written policies and 
procedures must be implemented by the wholesale distributor to protect 
the integrity of records.
    (d) Record retention. (1) Except for the records listed in 
paragraph (d)(2) of this section, all records required to be maintained 
by this subpart must be retained for a period of 3 years.

[[Page 6753]]

    (2) Records of investigation of suspect and illegitimate products 
and of destroyed, nonsaleable returned, and recalled prescription drugs 
must be retained for a period of 6 years.

Sec.  205.28  Inspections.

    (a) A facility to be used in wholesale distribution must undergo a 
physical inspection prior to issuance of the initial license by the 
Federal or State licensing authority.
    (1) Where the State is the licensing authority, such inspection may 
be conducted by:
    (i) The State in which the facility to be licensed is located; or
    (ii) A third-party accreditation or inspection service approved by 
the State licensing the wholesale distributor; or
    (iii) If the facility is located out of State, the State issuing 
the license may conduct the inspection or may accept an inspection by 
the State in which the facility is located or by a third party, as 
described in paragraph (a)(1)(ii) of this section.
    (2) Where the Food and Drug Administration is the licensing 
authority, the Food and Drug Administration may conduct the inspection 
or may accept an inspection conducted by an organization approved by 
the Food and Drug Administration under Sec.  205.32.
    (b) Records described in Sec.  205.27 that are kept at the 
inspection site or that can be immediately retrieved by computer or 
other electronic means must be readily available for inspection during 
the retention period. Records kept at a central location apart from the 
inspection site and not electronically retrievable must be made 
available for inspection within 2 business days of a request by a State 
or Federal official, or sooner if necessitated by the duration of the 
inspection.
    (c) Wholesale distributors must permit the appropriate Federal, or 
State licensing authority and State- or FDA-approved third-party 
inspection services to enter and inspect their premises and to audit 
their records and written operating procedures.
    (d) To ensure compliance with this subpart, routine inspections 
will be conducted once every 3 years by the licensing authority, or a 
third-party accreditation or inspection service approved by the Food 
and Drug Administration or the State licensing the wholesale 
distributor.

Sec.  205.29  Requirements for initial and annual reporting to the Food 
and Drug Administration.

    (a) Electronic reporting requirement. The wholesale distributor 
must report electronically to the Food and Drug Administration using a 
secure mechanism in a format the Food and Drug Administration can 
review, process, and archive pursuant to section 503(e)(2)(A) of the 
Federal Food, Drug, and Cosmetic Act. Information reported will be 
included in the Food and Drug Administration's public database for 
wholesale distributors pursuant to section 503(e)(2)(B) of the Federal 
Food, Drug, and Cosmetic Act.
    (b) Reporting periods--(1) Initial reporting. Any entity that owns 
or operates an establishment that engages in wholesale distribution 
must report within 30 calendar days of obtaining an initial State or 
Federal wholesale distributor license.
    (2) Annual reporting. Any entity that is licensed to engage in 
wholesale distribution must report to the Food and Drug Administration 
each calendar year between January 1 and March 31.
    (c) Required information. Information to be reported for each 
wholesale distributor must include:
    (1) A complete list of States where the wholesale distributor is 
licensed, including the corresponding identification number and the 
expiration date of each such license;
    (2) Name of company as it appears on the license, full business 
address, and contact information for the facility manager or designated 
representative of the wholesale distributor;
    (3) All trade names or business names under which the wholesale 
distributor conducts business; and
    (4) Any significant disciplinary actions by any State or Federal 
Agency taken against the wholesale distributor license related to the 
distribution of prescription drugs, including the State where the 
disciplinary action occurred, date of final action, type of 
disciplinary action, description of the violation, and documents 
associated with the disciplinary action.
    (d) Timing of significant disciplinary action reporting--(1) 
Initial reporting. The wholesale distributor must report to the Food 
and Drug Administration any significant disciplinary actions, including 
but not limited to revocation or suspension of a wholesale distributor 
license by a State or Federal licensing authority, which occurred in 
the 12 months prior to obtaining licensure.
    (2) Subsequent reporting. The wholesale distributor must, within 30 
calendar days after a final action taken by a State or Federal 
licensing authority, report significant disciplinary actions to the 
Food and Drug Administration.
    (e) Other reports--(1) Closure of a facility. The wholesale 
distributor must report to the Food and Drug Administration that a 
facility has ceased operations within 30 calendar days after it has 
stopped operating as a wholesale distributor.
    (2) Voluntary withdrawal of a State license. The wholesale 
distributor must report to the Food and Drug Administration that it has 
withdrawn its license in a State within 30 calendar days after such 
withdrawal, including any reasons for the voluntary withdrawal of 
licensure.

Sec.  205.30  Licensure denial, suspension, reinstatement, revocation, 
and voluntary termination--notice and opportunity to request a hearing.

    (a) Denial of application for licensure. (1) The licensing 
authority will refuse to approve a wholesale distributor license 
application for any of the following reasons:
    (i) The methods or procedures to be used in the distribution of the 
prescription drug, including receipt, storage, and handling, are 
inadequate to preserve its safety, identity, strength, quality, or 
purity.
    (ii) The facilities and controls used for the distribution of the 
prescription drug, including receipt, storage, and handling, are 
inadequate to preserve its safety, identity, strength, quality, or 
purity.
    (iii) The methods or procedures to be used in the distribution of 
the prescription drug, including receipt, storage, and handling, do not 
comply with the requirements for good storage practices in Sec.  
205.26.
    (iv) The personnel employed by the applicant do not meet the 
requirements necessary for good storage practices in Sec.  205.25.
    (v) There is insufficient information in the written policies and 
procedures required under Sec.  205.26(c) to determine whether the 
methods or procedures to be used in the distribution of the 
prescription drug, including receipt, storage, and handling, comply 
with the requirements for good storage practices in Sec.  205.26 and 
preserve the safety, identity, strength, quality, or purity of the 
prescription drug.
    (vi) The methods or procedures to be used in the distribution of 
the prescription drug, including receipt, storage, and handling, do not 
comply with the requirements for adequate recordkeeping in Sec.  
205.27.
    (vii) The application contains an untrue statement of material 
fact.
    (viii) The applicant does not permit a properly authorized officer 
or employee of the Food and Drug Administration, a State licensing 
authority, or an AO approved by the Food and Drug Administration 
pursuant to Sec.  205.32 an adequate opportunity to inspect the

[[Page 6754]]

facilities, controls, and any records relevant to the application.
    (ix) For renewal applications, the applicant fails to report to the 
licensing authority any pertinent change of information required in 
Sec.  205.21, Sec.  205.22, or Sec.  205.24.
    (x) For renewal applications, the applicant fails to report to the 
Food and Drug Administration any of the requirements for annual 
reporting in Sec.  205.29.
    (2) If review of a wholesale distributor's application fails to 
demonstrate that the wholesale distributor meets the requirements for 
licensure set forth in Sec.  205.22 and paragraph (a)(1) of this 
section, the licensing authority will provide written notice to the 
applicant that its license application may be denied, setting forth the 
grounds for the denial and providing an opportunity to demonstrate that 
the wholesale distributor meets the requirements for licensure.
    (3) The notice will inform the applicant of its right to provide 
additional information and request reconsideration of the denial by the 
licensing authority within 14 calendar days of the date of the 
licensing authority's written notice.
    (4) If no reconsideration is sought, or, if upon reconsideration, 
the licensing authority denies the applicant's request for licensure, 
the licensing authority will provide the applicant written notice of 
the denial and will provide the applicant notice of the opportunity to 
request a hearing.
    (5) The applicant who wishes to request a hearing has 10 calendar 
days after the date of the notice of denial to submit a written notice 
of participation and request for a hearing. The applicant who fails to 
submit a written notice of participation and request for a hearing 
within 10 calendar days waives the opportunity for a hearing.
    (6) Parts 10 through 16 of this chapter apply to wholesale 
distributor licenses issued by the Food and Drug Administration under 
sections 503(e) and 583 of the Federal Food, Drug, and Cosmetic Act.
    (b) Suspension of license after notice and opportunity to request a 
hearing. (1) The licensing authority may move to suspend a license if 
the licensing authority has a reasonable belief that the licensee has 
failed to comply with any of the standards for receiving and 
maintaining licensure described in this subpart and that the nature of 
the noncompliance at issue would likely compromise the quality of 
product or threaten public safety.
    (2) The licensing authority will provide written notice of the 
intent to suspend a wholesale distributor license setting forth the 
grounds for the suspension pursuant to this part, including what 
information would be required to demonstrate or achieve compliance. The 
notice will inform the applicant of its right to provide additional 
information, request reconsideration of the suspension by the licensing 
authority, and demonstrate or achieve compliance before suspension.
    (3) Each wholesale distributor license holder has 30 calendar days 
from the date of the notice of intent to suspend to present, in 
writing, comments and information bearing on the initial decision.
    (4) If no comments or information is received within 30 calendar 
days or, if upon reconsideration, the licensing authority believes the 
wholesale distributor license should still be suspended, the licensing 
authority will provide the wholesale distributor a second written 
notice of the intent to suspend, informing the wholesale distributor of 
the opportunity to request a hearing on the question of whether there 
are grounds for suspension.
    (5) The wholesale distributor must submit a written notice of 
participation and request a hearing in writing within 10 calendar days 
after the date of the notice of the intent to suspend. A wholesale 
distributor that fails to submit a written notice of participation and 
request for hearing within 10 calendar days waives the opportunity for 
a hearing.
    (6) Parts 10 through 16 of this chapter apply to wholesale 
distributor licenses issued by the Food and Drug Administration under 
sections 503(e) and 583 of the Federal Food, Drug, and Cosmetic Act.
    (7) If a wholesale distributor's license is suspended and the 
wholesale distributor does not demonstrate or achieve compliance to the 
licensing authority's satisfaction within the time period indicated in 
the notice of suspension, the licensing authority will move to revoke 
the wholesale distributor's license.
    (c) Immediate suspension of license. (1) The licensing authority 
may suspend a license effective immediately if the licensing authority 
reasonably believes that the licensee has failed to comply with any of 
the standards for receiving and maintaining licensure described in this 
subpart and that the nature of the noncompliance at issue would 
reasonably be expected to cause an imminent threat to public health.
    (2) The licensing authority will provide the wholesale distributor 
with written notice of immediate suspension of its license setting 
forth the grounds for the suspension pursuant to this part, including 
what information would be required to demonstrate compliance, and the 
opportunity to request a hearing within 10 calendar days of the 
wholesale distributor's request for such hearing.
    (3) The wholesale distributor must submit a written notice of 
participation and request a hearing in writing within 10 calendar days 
after the date of the written notice of immediate suspension. A 
wholesale distributor that fails to submit a written notice of 
participation and request for hearing within 10 calendar days from the 
date of the written notice waives the opportunity for a hearing.
    (4) Parts 10 through 16 of this chapter apply to wholesale 
distributor licenses issued by the Food and Drug Administration under 
sections 503(e) and 583 of the Federal Food, Drug, and Cosmetic Act.
    (5) If a wholesale distributor's license is suspended and the 
wholesale distributor does not demonstrate or achieve compliance to the 
licensing authority's satisfaction within the time period indicated in 
the notice of suspension, the licensing authority will move to revoke 
the wholesale distributor's license.
    (d) Reinstatement of suspended licenses. The licensing authority 
may reinstate a previously suspended license upon a wholesale 
distributor's showing of compliance with requirements in this part and 
upon such inspection and examination as the licensing authority may 
require.
    (e) Revocation. (1) If compliance is not demonstrated or achieved 
to the licensing authority's satisfaction within the time period 
indicated in the notice of suspension, the licensing authority will 
move to revoke the wholesale distributor's license.
    (2) The licensing authority will notify the wholesale distributor 
of the intent to revoke the wholesale distributor's license, setting 
forth the grounds for the revocation and offering an opportunity to 
request a hearing on the proposed revocation.
    (3) The wholesale distributor must submit a written notice of 
participation and request a hearing within 10 calendar days after the 
date of the notice of revocation. A wholesale distributor that fails to 
submit a written notice of participation and request for hearing within 
10 calendar days waives the opportunity for a hearing.
    (4) Parts 10 through 16 of this chapter apply to wholesale 
distributor licenses issued by the Food and Drug Administration under 
sections 503(e)

[[Page 6755]]

and 583 of the Federal Food, Drug, and Cosmetic Act.
    (f) Nonrenewal. If a license renewal application is not submitted 
by the date of expiration of the license, the license will be 
considered expired. A wholesale distributor may not engage in wholesale 
distribution with an expired license and must submit a new application 
for licensure.
    (g) Voluntary termination of licensure upon request by the 
wholesale distributor. The licensing authority will terminate a 
wholesale distributor's license upon the wholesale distributor's 
request, which will include a notice of intent to discontinue 
prescription drug wholesale distribution and waive opportunity for a 
hearing. A wholesale distributor that voluntarily terminates licensure 
must obtain a new license before resuming wholesale distribution.
    (1) If a wholesale distributor that has had its license revoked 
wishes to apply for a new license, the wholesale distributor must 
submit a new license application, which may include an inspection if 
required by the licensing authority under Sec.  205.28(a).
    (2) [Reserved]

Subpart D--Approved Organizations for Wholesale Distributors

Sec.  205.31  Use of approved third-party organizations.

    (a) A third-party organization that has been approved by the Food 
and Drug Administration pursuant to Sec.  205.32 (``approved 
organization'' (AO)) may be used to conduct initial and routine 
inspections of the wholesale distributor's facility, as directed by the 
Food and Drug Administration.
    (b) If an organization has been approved by the Food and Drug 
Administration to conduct inspections, the AO must:
    (1) Complete inspections within a timeframe not to exceed 90 
calendar days after receiving notice from the Food and Drug 
Administration to conduct an inspection;
    (2) Based on the inspection, write a detailed document including a 
summary of the AO's findings; and
    (3) Send the original document to the Food and Drug Administration, 
with a copy to the wholesale distributor, within 7 calendar days of 
completing the inspection.
    (c) To become an AO, and to maintain its approval, an organization 
seeking the Food and Drug Administration's approval and current AOs 
must:
    (1) Maintain records, including those that support the AO's initial 
and continuing qualifications for approval, for a minimum of 5 years.
    (2) Maintain the following records of inspections submitted to the 
licensing authority for a minimum of 5 years:
    (i) Copies of the records and supporting documentation reviewed as 
part of an inspection;
    (ii) Inspection reports;
    (iii) Correspondence with the Food and Drug Administration and the 
wholesale distributor associated with an inspection; and
    (iv) Information on the identity, conflict of interest 
certification/compliance statement, and qualifications of all AO 
personnel who contributed to the inspection.
    (3) Records maintained by the AO must:
    (i) Be readily retrievable and made available to Federal licensing 
authorities upon request;
    (ii) Be secure from unauthorized access or modifications; and
    (iii) Contain only alterations signed and dated by the individual 
who made the alteration. Such alteration must preserve the original 
information and document the reason for the alteration.
    (4) An AO must immediately report to the Food and Drug 
Administration the discovery of any evidence or observations of 
potential violations found at a wholesale distributor facility during 
an inspection of the facility that could pose imminent and serious 
adverse health consequences or death to humans. Reports must be made in 
the manner prescribed by the Food and Drug Administration.

Sec.  205.32   General qualifications of approved organizations.

    (a) To become and remain an AO, the organization and anyone 
employed by the organization, including contractors used by the 
organization:
    (1) Must not be a current Federal or State government employee;
    (2) Must not engage in prescription drug-related activities, 
excluding participation in the Agency's AO program and related 
activities, but including and not limited to manufacturing, wholesale 
distribution, repackaging, relabeling, dispensing, or 3PL activities;
    (3) Must disclose to the Food and Drug Administration any 
participation or financial interest in entities that participate in the 
design, manufacture, promotion, or sale of articles or activities that 
are predominantly Food and Drug Administration-regulated or are 
expected to result in Food and Drug Administration-regulated articles;
    (4) Must not be owned or controlled by, or have any organizational, 
material, or financial affiliation with, any of the entities engaged in 
manufacturing, wholesale distribution, repackaging, relabeling, 
dispensing, 3PL activities, or the design, manufacture, promotion, or 
sale of prescription drugs as defined in section 581(12) of the Federal 
Food, Drug, and Cosmetic Act;
    (5) Must enter and abide by a written agreement with the applicant 
before data and information otherwise exempt from public disclosure may 
be disclosed to the AO or the contractor;
    (6) Must operate in accordance with professional and ethical 
business practices, which include:
    (i) Protecting against conflicts of interest as set forth in 5 CFR 
part 2635 and 18 U.S.C. 208;
    (ii) Ensuring that the personnel employed or contracted by the AO 
who are working on inspections have sufficient education, training, 
knowledge, and experience to conduct inspections of wholesale 
distributors;
    (iii) Protecting against unauthorized disclosure of nonpublic 
information received, records, reports, and recommendations and 
maintaining appropriate security and protection of such information;
    (iv) Maintaining appropriate security and protection, physical and 
electronic, of any information received in relation to inspections;
    (v) Reporting information to the Food and Drug Administration and 
entities for which licensure reviews were conducted that accurately 
reflects data reviewed, inspectional observations made, and other 
matters that relate to or may influence compliance with the Federal 
Food, Drug, and Cosmetic Act; and
    (vi) Promptly responding to and attempting to resolve any 
complaints regarding activities for which it is approved by the Food 
and Drug Administration; and
    (7) Must establish and maintain policies, procedures, and 
documentation to demonstrate that, at the time of application, and 
throughout their tenure as an AO, the applicant has and can continue to 
satisfy the requirements to qualify as an AO capable of assessing 
compliance with all wholesale distributor requirements. Such policies, 
procedures, and documentation must include, but are not limited to:
    (i) AO program administration;
    (ii) Disciplinary actions and corrective measures;
    (iii) Recordkeeping and confidentiality;
    (iv) Use of contractors; and
    (v) Personnel qualifications and ongoing training.
    (b) If an AO elects to use contractors for inspections, the AO 
remains

[[Page 6756]]

responsible for the work of the contractors at all times.
    (1) AOs that use contractors to conduct inspections must have 
policies and procedures in place to ensure the contractor's continuing 
compliance with this part, as well as competence and qualifications to 
conduct inspections. Such policies and procedures must ensure that 
contractors:
    (i) Meet the qualifications set forth in paragraph (a) of this 
section;
    (ii) Do not subcontract their inspection duties, and that 
contractors are removed if such requirement is violated;
    (iii) Abide by the policies and procedures of the AO, as set forth 
in Sec.  205.33(b); and
    (iv) Complete and pass the same training required by the AO, as set 
forth in Sec.  205.33(c).
    (2) If an AO elects to use contractors to conduct inspections, the 
AO must receive and keep a record of written consent from the wholesale 
distributor to share confidential commercial information with 
contractors for which an inspection is being conducted.
    (3) AOs that elect to use contractors must submit to the Food and 
Drug Administration a list of contractors used by the organization, 
accompanied by a statement from the organization certifying that such 
contractors meet the requirements of this subpart.

Sec.  205.33  Process and procedures for approval by the Food and Drug 
Administration.

    (a) Application. An application to become an AO must be completed 
and submitted electronically to the Food and Drug Administration in a 
format the Food and Drug Administration can renew, process, and 
archive.
    (b) Required application information. Policies, procedures, and 
documentation as required by Sec.  205.32(a)(7) must accompany the 
application.
    (c) Training. Organizations must provide training and any 
individual who conducts inspections or supervises individuals who 
conduct inspections is required to undergo and pass the prescribed 
training.
    (1) If an individual does not pass training, that person must wait 
30 days before retaking the training, and may be required to show proof 
of additional education or experiential learning to demonstrate 
competence before retaking the training evaluation.
    (2) To maintain approval, individuals employed by the AO and 
conducting inspections or supervising those who conduct inspections 
must undergo and pass annual training as prescribed by the Food and 
Drug Administration. Failure to complete and pass annual training may 
result in suspension of approval.
    (3) The Food and Drug Administration may require additional 
training. If such additional training is required, AOs will be given a 
set time period during which training must be completed and passed to 
maintain approval.
    (d) Auditing. Prior to conducting its first inspection, an AO must 
undergo an onsite audit by the Food and Drug Administration. The Food 
and Drug Administration may also conduct random, periodic audits, as 
well as for-cause audits, of an AO, as set forth in paragraph (o) of 
this section.
    (e) Duration of approval and renewal process. (1) The Food and Drug 
Administration approval to conduct inspections is valid for a period of 
5 years.
    (2) AOs must submit a renewal application to the Food and Drug 
Administration no later than 6 months prior to the expiration date to 
renew its approval.
    (i) If a renewal application is submitted less than 6 months before 
the date of expiration, the AO's approval will expire if approval is 
not renewed prior to the date of expiration.
    (ii) Upon expiration of the AO's approval, the AO must cease 
conducting any inspection-related activities.
    (f) Denial of approval. If an organization does not meet all of the 
Food and Drug Administration's standards detailed in Sec. Sec.  205.31 
and 205.32 for becoming an AO, the Food and Drug Administration will 
deny the application in writing. Requests for review and 
reconsideration of a denial of an application must be submitted to the 
Food and Drug Administration within 30 calendar days of the date of the 
Food and Drug Administration's decision. If, upon reconsideration, the 
licensing authority denies the applicant's request for approval, the 
licensing authority will provide the applicant written notice of the 
denial and an opportunity to appeal pursuant to Sec.  10.75 of this 
chapter.
    (g) Suspension of approval after notice and opportunity to request 
a hearing. (1) The Food and Drug Administration may suspend approval of 
an organization after opportunity to request a hearing when there is a 
reasonable probability that the organization's noncompliance will 
negatively impact public health.
    (2) If an AO fails to maintain the Food and Drug Administration's 
standards pursuant to Sec. Sec.  205.31 and 205.32, the Food and Drug 
Administration will give written notice of the intent to suspend the 
organization's approval, including the grounds for the suspension, and 
the AO will have 30 days after the date of the notice to provide 
additional information to the Food and Drug Administration for 
reconsideration.
    (3) If no additional information is provided or, if upon 
reconsideration, the Food and Drug Administration still believes the 
AO's approval should be suspended, the Food and Drug Administration 
will issue the AO a formal written notice of intent to suspend, along 
with notice of the opportunity to request a hearing pursuant to part 16 
of this chapter.
    (4) An AO that wishes to request a hearing has 10 calendar days 
after the date of the formal notice of intent to suspend to submit a 
written notice of participation and request for a hearing. An AO that 
fails to submit a written notice of participation and request for a 
hearing within 10 calendar days from the date of the notice waives the 
opportunity for a hearing.
    (5) A suspended AO must notify any wholesale distributors with a 
pending inspection to be performed by the AO of the AO's suspension 
within 7 calendar days.
    (h) Immediate suspension of approval. (1) When there is a 
reasonable probability that the organization's noncompliance will cause 
imminent and serious adverse health consequences or death to humans, 
the Food and Drug Administration will suspend an AO's approval 
effective immediately.
    (2) In such a situation, the Food and Drug Administration will 
provide the AO a written notice of immediate suspension, along with 
notice and opportunity to request a hearing pursuant to part 16 of this 
chapter within 14 calendar days of the AO's request for such hearing.
    (3) An AO that wishes to request a hearing has 10 calendar days 
after the date of the formal notice of suspension to submit a written 
notice of participation and request for a hearing. An AO that fails to 
submit a written notice of participation and request for a hearing 
within 10 calendar days waives the opportunity for a hearing.
    (i) Reinstatement of approval. (1) An organization's approval may 
be reinstated if the Food and Drug Administration determines that the 
suspended organization has rectified the issues leading to the 
suspension and can meet the standards set forth in this subpart. 
Pursuant to this paragraph (i), the organization must rectify the 
issues and come into compliance with the Food and Drug Administration's

[[Page 6757]]

standards within 1 year from the date of suspension. If the issues have 
not been rectified within 1 year, the Food and Drug Administration may 
revoke the AO's approval subject to the provisions of this part.
    (2) An organization whose approval has been reinstated on a 
conditional basis will be subject to a 3-year probationary period, and 
if any material deficiencies arise during that period, the 
organization's approval may be revoked.
    (j) Revocation of approval. (1) The Food and Drug Administration 
may revoke approval of an organization whose approval has been 
suspended pursuant to paragraphs (g) and (h) of this section:
    (i) If an organization fails to demonstrate intent to comply with 
the issues leading to the suspension within 6 months from the date of 
suspension; or
    (ii) If the Food and Drug Administration determines that the 
organization failed to rectify the issues leading to the suspension to 
the Agency's satisfaction within 1 year of the date of suspension.
    (2) The Food and Drug Administration will give written notice of 
the intent to revoke the organization's approval, including the grounds 
for the revocation, and an opportunity to request a hearing pursuant to 
part 16 of this chapter.
    (3) The AO must submit a written notice of participation and 
request a hearing within 10 calendar days after the date of the notice 
of revocation. An AO that fails to submit a written notice of 
participation and request for hearing within 10 calendar days waives 
the opportunity for a hearing.
    (4) An organization whose approval is revoked that wishes to 
reapply to be an AO must submit a new application to the Food and Drug 
Administration.
    (k) Requests for reconsideration of Agency decision. (1) The Food 
and Drug Administration will follow the process outlined at Sec.  10.75 
of this chapter to review matters relating to denial of approval, 
including review of the organization's application.
    (2) The Food and Drug Administration will follow the process 
outlined at part 16 of this chapter to review matters relating to a 
suspension or revocation action, including review of the organization's 
application and administrative file.
    (3) The Food and Drug Administration's decision after request for 
reconsideration of denial, suspension, or revocation constitutes a 
final Agency action under 5 U.S.C. 702.
    (l) Voluntary withdrawal of approval. (1) An organization wishing 
to voluntarily withdraw its approval, including but not limited to when 
an AO goes out of business, must notify the Food and Drug 
Administration in writing at least 6 months prior to the date the 
organization intends for the withdrawal to become effective.
    (i) If an AO determines it will be withdrawing its approval with 
the Food and Drug Administration in less than 6 months, it must notify 
the Food and Drug Administration immediately of its intent to withdraw, 
and such notification must inform the Food and Drug Administration of 
the date the organization will cease business operations.
    (ii) [Reserved]
    (2) No later than 7 calendar days after notifying the Food and Drug 
Administration, the organization must notify any facilities with 
pending inspections that it intends to withdraw its approval with the 
Food and Drug Administration and must provide the date on which the 
withdrawal is effective.
    (m) AO-required notifications to wholesale distributors. The AO 
must, within 7 calendar days of the date of suspension, revocation, or 
voluntary withdrawal of approval, notify those wholesale distributor 
facilities that have pending inspections of the AO's suspension or 
revocation. This notification must inform the wholesale distributor 
facility that it must apply for inspection with another AO, or the Food 
and Drug Administration if no other organization is approved.
    (n) Change of operation or ownership. (1) The AO must report to the 
Food and Drug Administration within 30 calendar days any changes to the 
information submitted with its application for approval.
    (2) Approval is not transferable.
    (i) Changes in ownership of an AO require the organization to 
submit a new application to the Food and Drug Administration.
    (ii) Such application must be submitted to the Food and Drug 
Administration no later than 30 calendar days prior to the date of the 
change of ownership.
    (iii) No later than 30 calendar days before the date of the change 
of ownership, the AO must notify any wholesale distributor facilities 
with pending applications of the pending change in ownership.
    (iv) On the date the change of ownership takes place, the original 
approval is void.
    (o) Monitoring by the Food and Drug Administration. (1) AOs are 
subject to both periodic and for-cause audits by the Food and Drug 
Administration to ensure compliance with the Food and Drug 
Administration's requirements for approval in this part.
    (2) If an AO refuses to cooperate with the Food and Drug 
Administration's audit, the organization's approval may be suspended.

    Dated: January 24, 2022.
Janet Woodcock,
Acting Commissioner of Food and Drugs.
[FR Doc. 2022-01929 Filed 2-3-22; 8:45 am]
BILLING CODE 4164-01-P