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Drug and Food Issues

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• FDA Final Rule on Prescription Drug Labeling
• FDA Issues Facility Bar Code Regulations
• FDA Counterfeit Drug Report
• GAO Testimony Report-PRESCRIPTION DRUGS: State and Federal Oversight of Drug Compounding by Pharmacies
• Medicaid Prescription Reimbursement Information Website
• HHS Revises Criteria Defining State Pharmacy Assistance Programs

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FDA Final Rule on Prescription Drug Labeling

January 19, 2006

Background:  The Food, Drug and Cosmetic Act (FDCA) is the statute that governs the Food and Drug Administration.  The prescription drug portions of the FDCA do not contain language preempting state law in this area.  In December 2000, the Food and Drug Administration sought to revise its regulations pertaining to prescription drug labeling and published a Notice of Proposed Rulemaking (NPRM) in the Federal Register (NPRM).  FDA is required by Executive Order 13132—the Federalism Executive Order—to determine whether or not the proposed prescription drug labeling changes would preempt state laws, and if so, to consult with NCSL and other state and local government groups to eliminate or minimize the preemption.  When initially released five years ago, the NPRM contemplated no preemption of state laws.  FDA’s analysis under E.O. 13132 stated this and as a result, NCSL did not submit comments.  After the close of the comment period in early 2001, FDA never finalized the rule.  It did file amicus briefs in several state lawsuits (Zoloft and Paxil) in an attempt to convince the courts that federal labeling regulations did indeed preempt state labeling and product liability laws.  The courts have rejected FDA’s position on preemption, stating that FDA’s preemption argument, “contravenes common sense and vitiates rather than advances the Food, Drug and Cosmetic Act’s purpose of protecting the public.”  In re PAXIL Litigation, Civ. No. 01-7937 (C.D. Cal. 2002).  In January 2006, FDA contacted NCSL to state that preemption language mirroring the position taken in its amicus briefs would now be included in the preamble to the final rule on prescription drug labeling.  FDA informed NCSL that it would not reopen the comment period on the rule nor would it disclose the proposed language. 

NCSL’s Position:  NCSL opposes the language preempting state product liability laws.  The organization bases its opposition on the following:

1. FDA has usurped the authority of Congress, state legislatures and state courts.  There is no statutory authority in the FDCA for FDA to preempt state product liability laws as they relate to prescription drugs.  Instead of seeking valid congressional authority, unelected agency officials are seeking to preempt state product liability laws by writing this preemption into a final rule, thereby undermining state policy and judicial decision made in this area. 
2. FDA has violated the Federalism Executive Order.  The federalism executive order requires federal agencies to consult with the National Conference of State Legislatures and organizations representing governors and local elected officials.  NCSL fought hard to make sure that a meaningful consultation process was included in the executive order, precisely to give these officials an opportunity to comment on the effects of proposed regulations on state and local governments.  FDA’s policy shift should have triggered a consultation under the federalism executive order.  However, the FDA did not consult with NCSL or any other state or local organization, and, therefore, violated the federalism executive order.
3. The preemption provision is contrary to the consumer protection goals of the rest of the rule.  The overall thrust of the rule, with its guidelines for labeling, is to protect consumers.  The preemption of state product liability laws, however, harms the consumers the rule otherwise protects.  State tort laws and civil justice systems serve as an important check on federal standards.  Our civil justice system establishes a duty of care that protects citizens when the federal government is too slow to act or when federal standards are insufficient.  States have the ability to achieve greater protections for their citizens through successful product liability lawsuits.
4. NCSL has a long-standing and unwavering official policy position against preemption of state authority.  The organization’s Federalism policy is based on the belief in the value of diversity among the states and the policy innovation and experimentation that occur at the state level.  It is a policy that has its historic roots in the compromises that led to the founding of the country over 200 years ago.  Although the policy recognizes that there are circumstances when preemption may be warranted, preemption of state product liability laws is not one of them. 

For further information, please call NCSL staff Joy Johnson Wilson at 202-624-8689 or Susan Parnas Frederick at 202-624-3566.

Federal Ruling on PCMA's Challenge of Maine's Unfair Prescription Drug Practices Act 

In a unanimous decision November 8, 2005, the U.S. First Circuit Court of Appeals ruled in favor of the Maine Unfair Prescription Drug Practices Act (UPDPA) by affirming a lower court ruling against the Pharmaceutical Care Management Association's (PCMA's) challenge of the law. PCMA had brought suit on behalf of it's membership against Steven Rowe, Attorney General of the State of Maine, on five separate grounds including;

1. that the Maine law was preempted by either the Employee Retirement Income Security Act of 1974 (ERISA) or the Federal Employee Health Benefits Act (FEHBA),
2. that the UPDPA violates the Takings Clause of the Fifth Amendment because it conditions doing business in Maine upon the forced disclosure or taking of proprietary information,
3. PCMA states that the provisions of the UPDPA violate due process because they provide no predeprivation hearing,
4. the association claims that the UPDPA disclosure provisions violate the First Amendment by compelling commercial speech in the context of a voluntary business relationship, and
5. that the UPDPA violates the Commerce Clause, either through its "extraterritorial reach" or by excessively burdening interstate commerce.

PCMA is a national trade association of the pharmacy benefit managers (PBMs) who typically act as the middleman between manufacturers and pharmacies in the provision of prescription drugs to the public. PBMs act as a link for health benefit providers or insurance carriers to a network of pharmacies and accessing rates, special volume discounts and rebates negotiated by the PBM with the pharmacies. The PBMs also provide utilization management services which theoretically lower overall costs. Because the intermediary advantage may lead to a decision which may be detrimental to the health benefit provider, the State of Maine attempted to place the providers in a stronger bargaining position and control the rising cost of prescription drugs by enacting the UPDPA in the spring of 2003. The UPDPA requires PBMs to act in a fiduciary capacity for their clients and adhere to certain duties. It requires a PBM to reveal in writing to their covered entities or clients any potential conflicts of interest with their contractual responsibilities which may exist, to pass on benefits or savings for volume sales to their clients in full, and to reveal all financial terms and arrangements for remuneration of any kind between the PBM and the manufacturer or labeler.

The court's written opinion carefully outlines each of the plaintiff's claims. First, the ERISA preemption claim was found not to apply in this situation because the PBMs do not hold discretionary authority or control in the management and administration of a plan. In order to meet the definition of a fiduciary as provided under ERISA these conditions must be met. Since the PBMs regulated by the UPDA are not fiduciaries under ERISA, there can be no preemption in this instance.  In addressing the second claim that the law violates the Taking Clause of the Fifth Amendment, the court stated that since these client contracts contain no trade secrets there is no "property" subject to the Takings Clause. They also quoted the opinion from Ruckelshaus v. Monsanto Co., which stated that if an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the secret, his property right is extinguished.  Following these remarks regarding the claims related to the Taking Clause, the court followed by responding that since no taking and no deprivation had been shown, no predeprivation hearing would be required.

In relation to the next claim, the court also found that no violation of the First Amendment had occurred. PCMA had claimed that since the UPDPA required PBMs to engage in speech in order to comply with mandated disclosure, it violated their First Amendment rights. They held that the UPDPA disclosure provisions do not run afoul of the First Amendment citing Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio as precedents. The court felt that the party's rights would be adequately protected "as long as disclosure requirements are reasonably related to the state's interest in preventing deception of consumers". They continued by saying that it was obvious that UPDPA's disclosure requirements are "reasonably related" to Maine's interest in preventing deception of consumers and increasing public access to prescription drugs.     

Addressing the final claim, the court held that that UPDPA was not in violation of the Commerce Clause which grants the authority to regulate commerce among several states to the U.S. Congress. Citing Maine v. Taylor, the ruling comments that states retain authority under their general police powers to regulate matters of legitimate local concern, even though interstate commerce may be affected.

In the conclusion of the opinion, the court stated that if the PBMs truly assumed that they would be free from disclosure requirements of the sort set forth in the Maine law, this would be more wishful thinking than reasonable expectation. They later added that there are literally thousands of similar regulations on the books--such as, product labeling laws, environmental spill reporting, accident reports by common carriers, SEC reporting as to corporate losses and (most obviously) the requirement to file tax returns to government units who use the information to the obvious disadvantage of the taxpayer.

FDA Issues Facility Bar Code Regulations

February 25, 2004 -- The Food and Drug Administration (FDA) has published a new and final rule pertaining to a patient identification system which uses bar coding for human drug products and biological products. The rule requires that a patient receive a bar coded identification bracelet upon admission to a facility, which would be scanned prior to administration of drugs or biologic products in order to access a computerized medical record and record the administration of the product. The computer will send an error message if there is a problem alerting the clinician to investigate. The FDA estimates that the bar code rule, which is in effect April 26, 2004, once implemented, will result in more than 500,000 fewer adverse events over the next 20 years. Final Rule

FDA Counterfeit Drug Report

In July of 2003, FDA Commissioner Mark B. McClellan, M.D., Ph.D. announced a major initiative to protect American consumers from counterfeit drugs. The first step was to create an internal task force charged with developing recommendations for achieving four fundamental goals: (1) preventing the introduction of counterfeit drugs, (2) facilitating the identification of counterfeit drugs, (3) minimizing the risk and exposure of consumers to counterfeit drugs, and (4) avoiding the addition of unnecessary costs on the prescription drug distribution system, or unnecessary restrictions on lower-cost sources of drugs.

On Feb. 18, 2004, the FDA issued a final report that identifies ways to combat the growing public health problem of counterfeit prescription drugs in the United States. Counterfeit drugs are not only illegal but are also inherently unsafe.
The report describes specific steps that can be taken now and in the future to protect consumers from counterfeit drugs and to secure the U.S. drug distribution system. These measures include:

• Implementation of new technologies to better protect legitimate drugs against tampering or replacement with counterfeits.
• Adoption of reliable modern track and trace technology, which the FDA has concluded is feasible by 2007, to accomplish and surpass the goals of the Prescription Drug Marketing Act.
• Adoption and enforcement of stronger anti-counterfeiting measures by the state regulators of drug wholesalers and distributors.
• Increased criminal penalties to deter counterfeiting and more adequately punish those convicted.
• Adoption of secure business practices by all participants in the drug supply chain.
• Development of a system that helps ensure timely and effective reporting of counterfeit drugs to the FDA, and that strengthens the ability of the FDA, other regulatory agencies, and the other participants in the drug distribution system to respond rapidly to such reports.
• Education of consumers and health professionals about the risks of counterfeit drugs and about how to respond if they encounter such products.
• Collaboration with foreign stakeholders to develop strategies to deter and detect counterfeit drugs globally.

FDA Combating Counterfeit Drugs webpage.

GAO Testimony Report-PRESCRIPTION DRUGS: State and Federal Oversight of Drug Compounding by Pharmacies

Medicaid Prescription Reimbursement Information Website

A website has been established for Medicaid Prescription Reimbursement Information. This chart outlines reimbursement methodologies by state that appear in their respective approved state plans- co-pay amounts, dispensing fees, AWP, WAC and if a MAC program is in place. The information will be updated quarterly. The site may be found at http://www.cms.hhs.gov/medicaid/drugs/prescriptions.asp.

HHS Revises Criteria Defining State Pharmacy Assistance Programs

From the Department of Health and Human Services release No. 59 concerning the State Pharmacy Assistance Programs-Revised Criteria: We have received numerous inquiries and comments on whether State only programs meet the criteria of a State pharmacy assistance program (SPAP) for the purpose of being excluded from Best Price (BP) and Average Manufacturer Price (AMP). Effective June 23, 2003, in order for a State only pharmacy assistance program to qualify as a State pharmacy assistance program, it should generally meet the following criteria:

• The program is a State developed program specifically for disabled, indigent, low-income elderly or other financially vulnerable persons.
• The program is funded by the State; that is, no Federal dollars are involved.

• The program is set up such that payment is provided directly to providers.

• The program provides either a pharmaceutical benefit only or a pharmaceutical benefit in conjunction with other medical benefits or services.

• The program does not allow for the diversion, resale or transfer of benefits reimbursed under the State pharmacy assistance program to individuals who are not beneficiaries of the State pharmacy assistance program. 

Programs that reflect traditional state responsibilities, such as State employee benefit programs or medical programs for inmates or patients of State prisons or hospitals, do not meet these criteria. As a reminder, only the prices used under a State pharmacy assistance program can be excluded from the BP and AMP calculations; therefore, the prices of programs that do not meet these criteria should be included in BP and AMP calculations as appropriate.

At least one state is grouping several state-only programs together and sending manufacturers just one invoice for all the programs. It is possible that not all of these programs meet the above-mentioned criteria for a State pharmacy assistance program, and therefore, the prices used thereunder would not necessarily be excluded from BP and AMP. If a State sends out only one invoice for multiple programs and some of those programs do not qualify as State pharmacy assistance programs, it is the manufacturer's responsibility to determine the individual amounts that are being paid for each program and identify any instances where BP and AMP should be adjusted. To the end, it may be necessary to request separate invoices for the individual programs to ensure proper BP and AMP reporting.