DSCSA: Special Privileges For The “Big-3″ Wholesale Distributors, Part 2

iStock_000001015002SmallerIn Part 1 of this series I explained how the “Big-3” wholesale distributors in the U.S. changed their buying practices back in the mid-2000s so now they only buy their inventory directly from each drug manufacturer.  But in a small number of cases, that isn’t possible.  In those cases, they are forced to buy from an exclusive distributor, or from a company who buys pre-packaged drugs from the NDA- or ANDA-holder.  (See “DSCSA: Special Privileges For The “Big-3″ Wholesale Distributors, Part 1”.)  And I pointed out that the DSCSA contains “special privileges” for any wholesale distributor who can buy direct from the manufacturer.  In this second part, I will explain exactly what these “special privileges” are in the Drug Supply Chain Security Act (DSCSA).

The special privileges I am referring to are contained in the DSCSA Section 582(c)(1)(A), “In General”.  This section describes the general requirements that wholesale distributors must adhere to for “Product Tracing”, beginning this coming January.

Clause (ii) of that section refers to sales transactions for products which a wholesale distributor bought directly from the DSCSA manufacturer, the DSCSA exclusive distributor of the DSCSA manufacturer, or a DSCSA repackager that purchased directly from the DSCSA manufacturer.  Remember, I’m including “DSCSA” in front of the terms that have special meaning within the DSCSA because they were specifically defined in the law (see “Don’t Skip The DQSA Definition of Terms Section”).

This is a hard clause to decode—probably the hardest of the entire law.  Its complexity is caused by the depth the sub-clauses reach and the fact that the PDF provided by Congress does not use the proper indentation for each of those levels so at one point they are out-dented instead of in-dented.  And there are a number of section references that must be understood before you can fully understand what wholesale distributors are required to do.

In contrast, clause (iii) is pretty flat.  That clause contains the requirements for sales transactions for products which a wholesale distributor did NOT purchase directly from the DSCSA manufacturer, the DSCSA exclusive distributor of the DSCSA manufacturer, or a DSCSA repackager that purchased directly from the DSCSA manufacturer.  In other words, these are the requirements for any wholesale distributor who bought their inventory from another wholesale distributor.  (For more in-depth analysis of the entire DSCSA, get a copy of my book “The Supply Chain Security Act Explained”.)

The difference in the requirements of the sales transactions between products purchased directly and those that are not purchased directly are listed in the following table:

    How the Seller Acquired The Product
# Requirement Imposed on the Seller Direct Purchase NOT Direct Purchase
R1 Seller must provide buyer with TI, TH & TS Yes Yes
R2 Seller must include lot # in TI/TH No Yes
R3 Seller must include initial transaction date in TI/TH No Yes
R4 Seller must include initial shipment date for their acquisition of the product in TI/TH No Yes
R5 When the buyer is a dispenser, TI/TH/TS must be contained in a single electronic or paper document Yes Electronic or paper document, Yes.  “Single document”, is not stated explicitly.
R6 When the buyer is another wholesale distributor, TI/TH/TS may be composed of any combination of self-generated paper, electronic data, or manufacturer-provided information on the product package Yes No.  Requirement R5 also applies to these sales.


Requirements R2, R3, R4 and R6 constitute the set I call “special privileges” that the DSCSA grants to the first wholesale distributor of any drug.


The effect of these relaxed requirements for the first wholesale distributor mean that the “Big-3” really do not have to make many changes to their current inventory management and shipping practices over the next ten years for the vast bulk of the products they handle.  Yes, they will be required to receive the manufacturer’s DSCSA Transaction Information (TI) and Transaction Statement (TS), and they will need to store those away for retrieval in case of an investigation, but they will not really need to do anything else with them.  They get to start the TI, Transaction History (TH) and TS for their outgoing shipments from scratch with no real carryover from the information the manufacturer provides to them.

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But since they don’t need to carry over any information about the specific acquisition shipment in their sales transaction data, they do not need to do any internal tracking of these drugs in their inventories.  That is, they won’t need to keep track of lot numbers or connect outgoing shipments with a specific incoming shipment.  When they are ready to ship one of these drugs to a customer they need to create the outgoing TI, TH and TS.  The TH will need to indicate the company they bought the drug from originally, but they will not need to read the lot number from the drug packages, nor will they need to figure out exactly when they received them into their inventory.

Not only that, but when shipping to another wholesale distributor, just the act of shipping the product fulfills many of the data elements required in the TI and TH.  That’s because the label on the drug’s package contains the National Drug Code (NDC), drug name, strength and dosage form, container size, and the lot number.  Those are “manufacturer-provided information” on the drug’s label and they appear to suffice for compliance in these types of shipments (but I wonder how you retain a copy of the TI for six years after you ship the product that contains most of the information?).  What else is left?  The number of containers in the shipment, the seller’s and buyer’s name, and the date of the sales transaction are all that remain.

Considering that the first 10 years of the DSCSA is often referred to as “lot-based traceability”, isn’t is surprising that wholesale distributors who buy drugs directly do not need to pay any special attention to the lot number of the drugs they buy and sell?  Of course, it is not until November 27, 2019 that the law requires wholesale distributors to engage only in transactions involving drugs that are labeled with the new 2D barcode, which would allow automated capture of the lot number.  Prior to that, there will be no efficient way to read the lot number printed or embossed on the packages of drugs so you cannot expect companies to reference lot numbers.  But that just makes it all the more surprising that the law requires wholesale distributors who do NOT buy directly to include the lot number on their TI and TH, along with the other requirements in the table above, starting next year.

Any wholesale distributor who wishes to take advantage of these special privileges must include an additional attestation in the TS they provide to their customer.  They must attest that the drugs in question were acquired directly from the DSCSA manufacturer, exclusive distributor of the manufacturer, or repackager that purchased the product directly from the manufacturer.  But what about smaller wholesale distributors who do not have enough business to buy directly from every manufacturer?  They do not get these special privileges.

Watch for the conclusion of this series in Part 3 when I will finally explain the most surprising impact of these special privileges.  Stay tuned.

The drawing winner of the free single user license to “The Drug Supply Chain Security Act Explained” from the responses to the 2014 RxTrace Reader Survey (see “2014 RxTrace Reader Survey”) is Adrian Kämpfer of the University of Zurich / Actelion.  Congratulations Adrian, and thanks to everyone who participated.