The California pedigree law will have a surprising influence on how the pharmaceutical supply chain operates in another state. I’ll get to that in a minute, but first, the law will change some things about the way the supply chain operates in all states. Prescription drug manufacturers who want to continue offering their products to patients within California after 2015-2016 must add unique serial numbers to each drug package and start an electronic drug pedigree.
California is the only state that requires both of those things but most manufacturers are forced to treat the California state law as if it applies nationwide. That’s because most drug manufacturers sell through distributors in the United States and so they have no way of knowing which drug package will end up being shipped into California and which ones will not. Voila! Pharma manufacturers end up having to serialize and create a pedigree for every single package that enters the U.S. supply chain.
This almost certain outcome will likely affect the full nationwide supply chain in a couple of interesting ways.
AFTER 2015: ALL DRUGS IN THE U.S. SUPPLY CHAIN ARE SERIALIZED AND PEDIGREED BY THE MANUFACTURER
That will be a big change, even outside of California. Here are some of the things I think we will see happen:
- Authentication Services
Some manufacturers will implement voluntary serial number authentication services that will allow doctors, pharmacists distributors and law enforcement agencies to quickly and efficiently check the authenticity and recall status of a given serialized NDC (sNDC).
The manufacturer will also know exactly where they originally shipped each sNDC and that information might be useful to the person or agency making the authentication call in some situations, like perhaps when a law enforcement agency is suspicious of diversion or theft.
On the other hand, it might be viewed as opening too much liability on the manufacturer. Voluntary authentication (not mandated by law) will not likely get used very often—perhaps only when there is a suspicious event. In that case, it might be hard to tell if an authentic sNDC is attached to a truly authentic drug package. If a counterfeiter goes to the trouble of applying real sNDCs to the fakes it will be hard to detect unless there is a high likelihood that both the real and the fake will be authenticated by their current owners. Even in that event, whichever one is authenticated first will be given a green light but the second one might be given a red light (depending on how far away it is from the first one, how much time passes between authentications and perhaps who did the first and the second authentication). It could get tricky.
This is exactly why the SMS-based authentication services used in some African countries make use of unique codes hidden under a scratch-off coating. Counterfeiters can’t find out which codes are valid until someone scratches the coating off of real packages. Since the patient is supposed to be the person to scratch them off just before they make the authentication call it kind of gets in the way of the criminal. Manufacturers in the U.S. won’t be able to cover their sNDCs with scratch-off material because they will need to be scanned by downstream trading partners in California.
You can bet that manufacturers are going to want to take advantage of the sNDCs on all drug packages to help reduce the number of errors in their chargeback programs. Chargebacks are claims made by distributors to manufacturers whenever drugs are sold to pharmacies who have a contract price negotiated directly with the manufacturer that is lower than the distributor’s price.
It is believed that the process has a pretty high error rate that amounts to millions of dollars each year for the typical manufacturer. It would be very easy to eliminate duplicate claims if you require all claims to include the sNDCs of the packages sold, but that would require distributors to read the sNDCs on every drug package they ship to these customers so they can list them in their claims. That will happen in California as part of the pedigree requirements but probably won’t automatically be done everywhere else. Could the manufacturers insist on it once they are serializing everything? We’ll see.
THE SURPRISE CONSEQUENCE OF THE CALIFORNIA PEDIGREE LAW
But likely the most surprising consequence the California pedigree law will have is on the operation of the supply chain in the state of Florida. That’s because there is an often overlooked provision buried deep within the Florida pedigree law that says the following:
“499.01212 Pedigree paper.–
(1) APPLICATION.—Each person who is engaged in the wholesale distribution of a prescription drug must, prior to or simultaneous with each wholesale distribution, provide a pedigree paper to the person who receives the drug.
(2) FORMAT.—A pedigree paper must contain the following information:
(a) For the wholesale distribution of a prescription drug within the normal distribution chain:
(b) For all other wholesale distributions of prescription drugs:
7. The unique serialization of the prescription drug, if the manufacturer or repackager has uniquely serialized the individual prescription drug unit.
That’s right. The Florida pedigree law–up to now, generally considered a “non-serialized” pedigree law, meaning that it doesn’t require serialization on drug packages–appears to automatically become a serialized pedigree law, of sorts, for drugs distributed outside the normal distribution chain once manufacturers or repackagers begin to apply unique serial numbers to their individual drug packages…like after 2015.
The “normal distribution chain” is defined by Florida to mean drugs that only pass from the manufacturer to first distributor to first pharmacy. Any sales or transfers outside of that chain is considered outside the normal distribution chain (see my essay “The ‘Normal Distribution’ Concept”). And in Florida pedigrees start with the first owner after the manufacturer so manufacturers don’t have to start them (unlike California). See my essay “The California Pedigree Law” for a discussion of the differences between the Florida and the California laws. It appears that this surprise consequence will have the greatest impact on drug repackagers whose drugs are always, by definition, outside the normal distribution chain.
I’m not a lawyer so check with yours before you take any action on this, but it seems like this language will result in the need to keep track of serial numbers on some of the drugs shipped within the supply chain in Florida too…starting as soon as serial numbers start showing up on drug packages. That should start happening pretty soon now.
Can you think of other consequences—surprising or not—of serialization on the operation of the U.S. drug supply chain? Leave a comment below.