Would A U.S. Federal Pedigree Law Require A New UFA?

Bag-O-MoneyImportant Notice To Readers of This Essay On November 27, 2013, President Barack Obama signed the Drug Quality and Security Act of 2013 into law. That act has many provisions, but one is to pre-empt all existing and future state serialization and pedigree laws like those that previously existed in California and Florida. Some or all of the information contained in this essay is about some aspect of one or more of those state laws and so that information is now obsolete. It is left here only for historical purposes for those wishing to understand those old laws and the industry’s response to them.One of the questions that must be answered is, “how will an ePedigree and track & trace system be funded?”.  Who pays, who gets paid, and how much?  The answer to these questions are partly determined by which technology model is in use.  One reason a distributed model is usually the first model people think of is that the funding is so obvious:  it is localized.  In that model each company would arrange for their own services.  No pooling is needed.  That’s simple to understand and quantify because everyone is in control of the services they need.

But because distributed models have so many points of failure—any one of which would make ePedigree information inaccessible to downstream trading partners—most people gravitate toward centralized or semi-centralized models where the data is pooled in one or more third-party repositories (see, “InBrief: ePedigree Models and Points of Failure”).  How would these models get funded?

The funding of fully centralized implementations is fairly simple.  Typically these have been paid for by the government, and they end up owning the data deposited there.  Of course, the government is funded through taxes so in these instances the entire population, or the pharmaceutical-taking population, pays for the ePedigree system.  In these instances, the government may sub-contracts the technology work to a single third-party so, except for the initial and subsequent government contract bid processes, there is no further competition.  Italy and Turkey are two examples of this approach to funding.

One of the whole points of the semi-centralized ePedigree model is to enable competition on cost and quality of service, but it would probably only work in countries that have a long tradition of capitalism and free market economics.  In this model, each supply chain member would choose one solution provider from a pool of accredited competitors.  They would sign a contract for ePedigree services at a negotiated price.  The supply chain member would be free to switch solution providers at any time, subject to the terms of their current contract.  That should keep prices reasonably low.  That’s the theory anyway.  One unanswered question:  who does the accrediting?

WHICH MODEL WILL CALIFORNIA USE?

The California pedigree law does not specify the technology to be used to meet it.  That means that the technology and funding models are left up to the industry to figure out on their own.  Selection of these models requires some kind of organization so that agreement can be established and the necessary systems—technical and financial—can be built in advance of the effective dates of the law.  Fortunately, GS1 US has stepped up to contribute some of the technology agreements, but the full technical model organization and the funding model are still left unidentified.  We are approaching the 1 ½ year point without these things being fully agreed upon and I don’t see anyone other than GS1 US working on organizing the industry.

(NOTE:  We are just about 1 ½ years away from January 1, 2015, the first date that manufacturers must serialize some of their drugs and start drug pedigrees.  From this point on, time is going to go by pretty fast for companies who are not yet ready.  However, see my theory on how the industry might be able to defer the pedigree part for an additional 18 months, “InBrief: Can ePedigree Be Deferred Until Mid-2016?”.)

Unfortunately, GS1 US can only go so far in organizing the industry.  They can facilitate common agreements on the standards used to ensure interoperability (GS1 standards, of course.  See “The New GS1 Healthcare US Track & Trace Guidance”), but they cannot organize the industry around any given funding model.  That’s just not what they do.  Someone else needs to do that.

But who?  I don’t know, but I can tell you who it won’t be.  It won’t be the State of California, the FDA or the various industry associations like PhRMA, HDMA or NACDS.  Perhaps it could have been the National Association of Boards of Pharmacies (NABP), but now is probably a little late for them to get involved.

So add “unknown funding model” to the list of things that are uncertain about the implementation of the California law (see “California ePedigree Uncertainty”).

WHICH FUNDING MODEL WOULD THE POTENTIAL FUTURE FEDERAL PEDIGREE USE?

At this point, there is a fair chance that the Federal government will pass a national drug pedigree requirement by the end of the summer which would preempt all of the existing state laws, including California (see “An Industry Protection Bill Concealed Under The Veil Of Patient Protection”, InBrief: A Track And Trace Bill Has Made It To The House Floor”, “InBrief: A Track & Trace bill Has Made It To The Senate Floor” and “The Preemption Provisions Built Into The California Pedigree Law”).  Of course, they won’t call it a “drug pedigree” law, but it’s a lot easier to call it that than to call it a “transaction history, transaction information and transaction statement” law.  Call it what it is, a drug pedigree law.

Anyway, if it passes, which technology model and funding model would it use?  The bills currently being debated do not identify which would be necessary.  To me, it appears that they leave those decisions up to the FDA, who would work with industry stakeholders on the decisions.

I used to think that the FDA would recommend the semi-central technical model, but recently I’ve started to think a little differently (for an explanation of the various technical models, see “The Viability of Global Track & Trace Models”).  The FDA may prefer to hold (and perhaps own) all of the pedigree data in a centralized government-run repository, just like Italy, Turkey, China, Brazil and Argentina have decided before them.  That way, they can investigate and monitor without asking permission or getting subpoenas as they would if the data were stored in third-party repositories where the data ownership rights remain with the company that generated each piece.

I once thought that a centralized approach wouldn’t work in the U.S. because the FDA doesn’t have funding to mount such a huge new undertaking like a real-time pedigree repository capable of keeping up with all drug changes of ownership transactions across the country at unit-level.  But then I thought about how FDA funding has transformed over the last two decades from a taxpayer funded organization to one that is largely funded by user fees.  Why wouldn’t the development and operation of a centralized pedigree, or track & trace repository be funded through a new user fee?

FDA USER FEES

“User Fees” are fees collected from the industry to pay for various programs administered by the FDA.  Each fee is targeted at a specific program and its monetary size and year-to-year growth is set by Congress.

Here is a list of all of the user fees that the FDA “Division of User Fees” currently collects:

In short, every major initiative that the FDA administers now comes with its own user fee.  Why would we think the FDA would treat a major new ePedigree collection and storage system any differently?  (To see the latest proposal for new user fees, see the recently released FDA budget for FY’14, weighing in at over 500 pages.)

Odds are, if a national pedigree system is enacted by the U.S. government and the FDA settles on a central pedigree repository, we will probably see TnTUFA (pronounced “tuhn toofah”, for Track ‘n Trace User Fee Act) or TaTUFA (pronounced “tah toofah”, for Track and Trace User Fee Act).  “Users” contributing the fees would probably include manufacturers, repackagers, wholesalers and pharmacies—all of the types of companies that would need to access and update the pedigree repository for one or more drugs.  But first we would go through years of study and public commentary as required by the bills being considered in Congress.

What do you think the odds are that we will see a user fee for ePedigree/track & trace at the federal level?

Dirk.

4 thoughts on “Would A U.S. Federal Pedigree Law Require A New UFA?”

  1. I strongly agree that this use fee will have to be at the Federal level. Anyplace else is not going to work and this will not be under the proper control. Of course, now implementation will drag on forever. I think we will be lucky to see this in ten years now after all of the politicos get done hacheting it.

  2. Putting user fee (i.e. manufacturer will be requested to pay) side by side with a central track & trace governmental repository will look very close to digital taxes.

  3. Dirk, Thanks another insightful coverage.
    This is another issue that keeps coming up as one architects a commercial solution – how does the system pay for itself? (and going beyond ‘eyeballs’ from the dotcom experience)
    I would hazard to say the Airline Reservation Systems serve as a useful global architecture and fee model (the scale of data handled and regulatory oversight – being vastly different) This model might also address the single point of failure (data and security) and government control issues. The speed to address law enforcement and legal situations around patient incidents raised in this article is the real issue in any model – which is why these systems are being considered in the first place!

  4. An ePedigree track & trace systems perhaps could be funded by venture capital. VC has backed the Climate Corporation, a newco by former Google employees.

    The Climate Corporation examines weather data to provide insurance to farmers who can lock in profits even in the case of drought, excessive rains or other adverse weather conditions

    A newco could allow a scalable business model to evolve selling granular liability insurance to regulated industries in return for free track and trace services. The granular nature of immutable data would allow a free market to develop without losing data (unlike today).

    http://www.climate.com/

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