[Federal Register: December 3, 1999 (Volume 64, Number 232)]
[Rules and Regulations]
[Page 67720-67763]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03de99-20]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 203 and 205

[Docket Nos. 92N-0297 and 88N-0258]
RIN 0910-AA08


Prescription Drug Marketing Act of 1987; Prescription Drug
Amendments of 1992; Policies, Requirements, and Administrative
Procedures

AGENCY:  Food and Drug Administration, HHS.

ACTION:  Final rule.

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SUMMARY:  The Food and Drug Administration (FDA) is issuing a final

[[Page 67721]]

rule to set forth procedures and requirements implementing the
Prescription Drug Marketing Act of 1987 (PDMA), as modified by the
Prescription Drug Amendments of 1992 (PDA) and the FDA Modernization
Act of 1997 (the Modernization Act). The final rule sets forth
requirements for the reimportation and wholesale distribution of
prescription drugs; the sale, purchase, or trade of, or the offer to
sell, purchase, or trade, prescription drugs that were purchased by
hospitals or health care entities, or donated to charitable
organizations; and the distribution of prescription drug samples. FDA
is also amending certain sections of the regulations entitled
``Guidelines for State Licensing of Wholesale Prescription Drug
Distributors'' to make them consistent with this final regulation.
DATES:  Submit written comments on the collection of information
provisions by February 1, 2000. This regulation is effective December
4, 2000.

ADDRESSES:  Submit written comments on the collection of information to
the Dockets Management Branch (HFA-305), Food and Drug Administration,
5630 Fishers Lane, rm. 1061, Rockville, MD 20857. All comments should
be identified with the docket number found in brackets in the heading
of this document.

FOR FURTHER INFORMATION CONTACT:
    For information on the PDMA and regulations: Lee D. Korb, Center
for Drug Evaluation and Research (HFD-7), Food and Drug Administration,
5600 Fishers Lane, Rockville, MD 20857, 301-594-2041, e-mail address
via Internet: ``Korbl@CDER.FDA.GOV''.
    For information on compliance with and enforcement of the
regulations: Margaret M. O'Rourke, Center for Drug Evaluation and
Research (HFD-330), Food and Drug Administration, 7500 Standish Pl.,
Rockville, MD 20855, 301-594-0101, e-mail address via Internet:
``Orourke@CDER.FDA.GOV''.
     For information on biologics: Steven F. Falter, Center for
Biologics Evaluation and Research (HFM-17), Food and Drug
Administration, 1401 Rockville Pike, Rockville, MD 20852, 301-827-6210,
e-mail address via Internet: ``Falter@CBER.FDA.GOV''.
SUPPLEMENTARY INFORMATION:

I. Background

    PDMA (Public Law 100-293) was enacted on April 22, 1988, and was
modified by the PDA (Public Law 102-353, 106 Stat. 941) on August 26,
1992. PDMA, as modified by the PDA, amended sections 301, 303, 503, and
801 of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C.
331, 333, 353, 381) to establish restrictions and requirements relating
to various aspects of human prescription drug marketing and
distribution. Among other things, PDMA: (1) Banned the sale, purchase,
or trade of (or offer to sell, purchase, or trade) drug samples and
drug coupons; (2) restricted reimportation of prescription drugs to the
manufacturer of the drug product or for emergency medical care; (3)
established requirements for drug sample distribution and the storage
and handling of drug samples; (4) required wholesale distributors of
prescription drugs to be State licensed and required FDA to establish
minimum requirements for State licensing schemes; (5) established
requirements for wholesale distribution of prescription drugs by
unauthorized distributors; (6) prohibited, with certain exceptions, the
sale, purchase, or trade (or offer to sell, purchase, or trade) of
prescription drugs that were purchased by hospitals or health care
entities, or donated or supplied at a reduced price to charities; and
(7) established criminal and civil penalties for PDMA violations.
    In the Federal Register of September 13, 1988 (53 FR 35325), FDA
published a proposed rule containing minimum requirements for State
licensing of wholesale drug distributors. The final rule on State
licensing requirements (part 205 (21 CFR part 205)) was published in
the Federal Register of September 14, 1990 (55 FR 38012) (hereinafter
referred to as the State licensing guideline final rule). The State
licensing regulations require that all wholesale distributors be State
licensed, establish minimum qualifications for licensees, and set forth
minimum requirements for the storage and handling of prescription drugs
and for the establishment and maintenance of records of drug
distribution by wholesale distributors.
    In the Federal Register of March 14, 1994 (59 FR 11842), FDA issued
a proposed rule to set forth agency policies and requirements for those
sections of PDMA not related to State licensing of wholesale
distributors (hereinafter referred to as the March 1994 proposal). The
March 1994 proposal contained provisions on prescription drug
reimportation, wholesale distribution of prescription drugs by
unauthorized distributors, the resale of prescription drugs by
hospitals, health care entities, and charitable institutions, and
distribution of prescription drug samples. The March 1994 proposal
called for the submission of comments by May 30, 1994. At the request
of certain individuals, the comment period was extended, by notice in
the Federal Register of July 15, 1994 (59 FR 36107), to August 15,
1994. After careful consideration of the comments, the agency has
revised and finalized the March 1994 proposal. A discussion of
significant issues, the comments received on the proposal, and the
agency's responses to the comments follows.

II. Significant Issues and Revisions to the Proposal

A. Reimportation of Drugs Composed Wholly or Partly of Insulin

    On November 21, 1997, the Modernization Act (Public Law 105-115)
was enacted. Section 125(a)(2)(D) of the Modernization Act amended
section 801(d)(1) of the act to prohibit the reimportation of a drug
composed wholly or partly of insulin, except by the manufacturer of the
drug or for emergency care. In accordance with the revised statutory
requirement, the agency has revised proposed Secs. 203.10 and 203.12
(21 CFR 203.10 and 203.12) in the final rule to include insulin-
containing drugs.

B. Blood and Blood Components Intended for Transfusion

    In the State licensing guideline final rule, FDA excluded from the
definition of ``wholesale distribution'' the sale, purchase, or trade
of blood and blood components intended for transfusion (see
Sec. 205.3(f)(8)). Thus, persons engaged in the distribution of blood
or blood components intended for transfusion are not required to be
State licensed wholesale prescription drug distributors or to comply
with other part 205 requirements.
    Concurrent with the State licensing guideline final rule, FDA
published a proposed rule entitled ``Applicability to Blood and Blood
Components Intended for Transfusion; Guidelines for State Licensing of
Wholesale Prescription Drug Distributors'' (55 FR 38027) (hereinafter
referred to as the September 1990 proposal). In that proposal, FDA: (1)
Tentatively concluded that PDMA does not apply to the distribution of
blood and blood components intended for transfusion, (2) set forth its
rationale for its tentative conclusion, and (3) solicited comments. The
agency stated that, if comments persuaded FDA that PDMA should be
interpreted as applying to the distribution of blood and blood
components intended for transfusion, FDA would amend the State
licensing guideline final rule.

[[Page 67722]]

 Comments received on the proposal supported the exclusion, however,
and no action has been taken by the agency to amend part 205.
    FDA again tentatively concluded in the March 1994 proposal (59 FR
11842 at 11844) that the restrictions in and the requirements of PDMA
do not apply to the distribution of blood and blood components intended
for transfusion. Proposed Secs. 203.1 and 203.3(v) (21 CFR 203.1 and
203.3(v)) specified that blood and blood components intended for
transfusion are outside the scope of PDMA, and do not constitute
``prescription drugs'' for the purposes of part 203 (21 CFR part 203).
In addition, proposed Sec. 203.22(g) specifically excluded the sale,
purchase, or trade of, or offer to sell, purchase, or trade blood or
blood components intended for transfusion from the sales restrictions
in proposed Sec. 203.20. No comments opposing the proposed sections
were received.
    Based on the rationale set forth in the September 1990 proposal,
the agency has made a final determination that blood and blood
components intended for transfusion should be excluded from all of the
restrictions in and the requirements of PDMA. Accordingly, proposed
Secs. 203.1, 203.3(v), and 203.22(g) are being finalized, and the
September 1990 proposal (Docket No. 88N-0258)is not being adopted.
    As discussed in section III.B of this document in conjunction with
comments received on the proposed rule, blood and blood components
intended for transfusion include whole blood, red blood cells, plasma,
fresh frozen plasma, cryoprecipitated AHF, and platelets. Blood
derivatives such as Factor IX, Factor IX Complex, and immune globulin,
as well as recombinant products regulated as biological products, are
not blood or blood components intended for transfusion and, therefore,
are subject to the requirements and restrictions of PDMA.

C. Medical Gases

    In the March 1994 proposal (59 FR 11842 at 11844), the agency
clarified that oxygen, USP (United States Pharmacopeia), is a
prescription drug subject to section 503(b) of the act and, therefore,
within the scope of PDMA and the proposed regulations. Since the
publication of the March 1994 proposal, questions have been raised
about the applicability of PDMA to medical gases generally.
    FDA advises that all medical gases (i.e., oxygen, USP; nitrogen, NF
(National Formulary); nitrous oxide, USP; carbon dioxide, USP; helium
USP; and medical air, USP) are prescription drugs within the scope of
PDMA and the State licensing guideline final rule. Therefore, under
Sec. 205.4, all persons engaged in the wholesale distribution of
medical gases must be State licensed. This includes all air separation
plants and units, suppliers, welding firms, durable medical equipment
suppliers, and home respiratory care companies that distribute medical
gases, except for those entities that exclusively distribute medical
gases to patients under a valid prescription (see Sec. 205.3(f)(6)). In
addition, distributors of medical gases are subject to all other
restrictions and requirements under PDMA and this final rule, including
the requirement under Sec. 203.50 to provide a drug origin statement
and the requirements for drug sample distribution. The agency notes,
however, that because most distributors of medical gases qualify as
manufacturers under Sec. 203.3(s), the requirement to provide a drug
origin statement will generally not apply to such distributors. In
addition, the agency is unaware of the practice of providing samples of
medical gases to licensed practitioners. Therefore, the drug sample
provisions of PDMA and this final rule should have no practical
applicability to the medical gas industry.

D. Revision to Proposed 203.3(e)

    In proposed Sec. 203.3(e), the term ``bulk drug substance'' was
defined to mean:
    Any drug or drug component furnished in other than finished
dosage form that is intended to furnish pharmacological activity or
other direct effect in the diagnosis, cure, mitigation, treatment,
or prevention of disease, or to affect the structure or function of
the body of humans.
In Sec. 207.3(a)(4) (21 CFR 207.3(a)(4), the term is defined to mean:
    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,
but the term does not include intermediates used in the synthesis of
such substances.
Although the definitions are similar, the agency has decided that it is
appropriate to use identical definitions of bulk drug substance
throughout the regulations. Accordingly, the final rule adopts the
definition of bulk drug substance used in Sec. 207.3(a)(4).

E. Revisions to Proposed Sec. 203.31(d)

    For drug samples delivered by representatives, PDMA provides that a
manufacturer or distributor is required to conduct a complete and
accurate inventory of all drug samples in the possession of
representatives at least annually (21 U.S.C. 353(d)(3)(C)). FDA
proposed in Sec. 203.31(d) to require that manufacturers and
distributors conduct a ``complete and accurate drug sample inventory''
at least annually of all drug samples in the possession or control of
each manufacturer's and distributor's representatives using ``generally
accepted inventory practices.'' In addition, FDA proposed to require
that the results of the inventory be ``recorded in an inventory record
and reconciliation report.''
    Under proposed Sec. 203.31(d)(1), the inventory record would
identify all drug samples by the proprietary or established name,
dosage strength, and number of sample units in stock. Under proposed
Sec. 203.31(d)(2), the reconciliation report would contain a report of
the physical count of the most recently completed prior inventory, a
record of each drug sample received since the most recently completed
prior inventory, a record of each drug sample distributed since the
most recently completed prior inventory, and an explanation for any
significant loss. Under proposed Sec. 203.31(d)(3), the inventory would
be conducted, and the inventory and reconciliation reports would be
prepared by persons other than the representatives being inventoried or
supervisors or managers in their department, division, or branch, or in
their direct line of supervision or command.
    The agency has revised proposed Sec. 203.31(d) in the final rule to
clarify certain requirements. The introductory paragraph of
Sec. 203.31(d) has been revised to specify that a ``physical
inventory'' of drug samples is required, rather than an inventory. The
term ``physical inventory'' has been added to more clearly distinguish
the inventory from the reconciliation process and to clarify that the
required inventory consists of a physical count of stock on hand. The
proposed requirement that the inventory be conducted ``using generally
accepted inventory practices'' has been deleted in the final rule
because the agency has determined that there are no generally
recognized standards for conducting a physical count. The final rule
has also been revised to clarify that the results of the physical count
must be recorded in the inventory record, not in the inventory record
and reconciliation report. The proposed requirements for the inventory
record remain unchanged.
    In contrast to the relatively simple task of conducting a physical
count, the reconciliation process involves comparing the latest
inventory to the most recent prior inventory and taking into account
drug samples acquired and distributed in the interim, to determine

[[Page 67723]]

whether sample diversion by a representative has occurred. As discussed
by the agency in the March 1994 proposal, Congress' purpose in enacting
the inventory requirement was to facilitate detection of diversion
activity, and conducting a physical inventory without reconciling that
inventory with the most recent prior inventory would not achieve this
goal (59 FR 11842 at 11849). Thus, the introductory paragraph of
proposed Sec. 203.31(d) has been revised in the final rule to clarify
that, in addition to a physical inventory, manufacturers and
distributors are required to reconcile the results of the physical
inventory with the most recently completed prior physical inventory and
to document this process in a reconciliation report.
    The agency has revised proposed Sec. 203.31(d)(2)(i) in the final
rule to require that the reconciliation report include the inventory
record for the most recently completed prior inventory. This is the
same as the requirement in proposed Sec. 203.31(d)(2)(i) for a ``report
of the physical count of the most recently completed prior inventory,''
but the terminology is clearer and consistent with the terminology used
in Sec. 203.31(d)(1).
    Proposed Sec. 203.31(d)(2)(iii) has been revised in the final rule
to clarify the types of transactions that the agency considers to be
``distributions.'' This clarification is necessary because a
representative's stock of drug samples may be affected by various types
of dispositions other than distributions to health care practitioners
or their designees, and it is necessary that the reconciliation report
reflect these different types of dispositions so that an accurate
assessment of potential drug diversion activity can be made. Section
203.31(d)(2)(iv), which requires a record of drug sample thefts or
significant losses reported by the representative since the most
recently completed prior inventory, has been added for the same reason.
    Section 203.31(d)(2)(v), which requires a summary record of the
information contained in Sec. 203.31(d)(2)(ii) through (d)(2)(iv), has
been added in the final rule. The summary record will permit
manufacturers and authorized distributors of record and the agency to
quickly review the information that is necessary to conduct a
reconciliation and thus will help to facilitate checking the accuracy
of reconciliations.
    Finally, as discussed in section III.E of this document in
conjunction with the comments, proposed Sec. 203.31(d)(3) has been
substantially revised in the final rule to eliminate the proposed
requirement that the inventory and reconciliation functions be
conducted by persons other than the representative or supervisors or
managers in the representative's department, division, or branch, or in
the representative's direct line of supervision. Instead, manufacturers
and authorized distributors are required to take appropriate internal
control measures to guard against error and possible fraud in the
conduct of the physical inventory and reconciliation, and in the
preparation of the inventory record and reconciliation report.

F. Elimination of Sec. 203.31(f)

    Proposed Sec. 203.31(f) has been removed from the final rule. The
proposed section contained the same requirement for a manufacturer or
authorized distributor to notify FDA of any conviction of its
representatives as proposed in Sec. 203.37(c) and finalized in the
rulemaking.

G.Revisions to Proposed Sec. 203.34

    Proposed Sec. 203.34(b), (c), (d), and (g) have been revised and
renumbered in the final rule as Sec. 203.34(b)(1) through (b)(4).
Proposed Sec. 203.34(d) is being finalized as Sec. 203.34(b)(1) and has
been revised to clarify that a manufacturer or authorized distributor
must have written policies and procedures detailing its methodology for
reconciling sample requests and receipts and for determining if
patterns of nonresponse exist that may indicate sample diversion. In
addition, written policies and procedures must detail how a
manufacturer or authorized distributor will initiate investigations or
otherwise respond when patterns of nonreturns of sample receipts are
found. Proposed Sec. 203.34(c) is being finalized as Sec. 203.34(b)(2)
and has been revised to cover the preparation of the reconciliation
report as well as the conduct of the physical inventory. Proposed
Sec. 203.34(b) is being finalized as Sec. 203.34(b)(3) and has been
revised to require manufacturers and distributors to establish and
adhere to written policies describing their administrative systems for
conducting random and for-cause audits of sales representatives. The
necessity for such audits is discussed in conjunction with comments on
proposed Sec. 203.31(d).

H. Charitable Donations of Prescription Drug Samples

    In the preamble to the March 1994 proposal (59 FR 11842 at 11853),
the agency addressed the practice whereby licensed practitioners donate
prescription drug samples to charitable institutions such as free
clinics, nursing homes, and other charitable health care entities for
dispensing to patients or for further distribution to other domestic or
overseas charities. The agency recognized the importance of this
practice to the operations of such institutions and to the goal of
providing adequate medical care to patients in need, but also expressed
concern that the practice may make enforcement of the sample
distribution provisions of PDMA difficult and provide an avenue for
drug diversion. The agency tentatively concluded that charitable
donations of drug samples is permissible under PDMA, provided that a
system of controls is in place to provide accountability and oversight
over such donations and to minimize the potential for drug diversion.
The agency proposed a system of drug sample donation controls in
Sec. 203.39.
    Although no comments were submitted concerning the provisions in
Sec. 203.39, the agency has determined that some of the proposed
requirements are burdensome and unnecessary to ensure accountability
and oversight over donated drug samples. Accordingly, the agency has
revised the proposed requirements as follows.
    Proposed Sec. 203.39(a)(1) and (a)(2), which required that
charitable institutions that receive drug sample donations be licensed
by the State, if required by State law, and enrolled with FDA, have
been eliminated. Regarding the elimination of proposed
Sec. 203.39(a)(1), the agency notes that charitable institutions are
still required to comply with applicable State law in their operations.
However, the agency believes that it is appropriate to defer licensure
or other State requirements to the States. Proposed Sec. 203.39(b)(1),
which required charitable institutions to provide documentation
demonstrating that their agents are authorized to solicit or receive
drug sample donations, and proposed Sec. 203.39(b)(2), which required
charitable institutions to maintain a list of agents authorized to
solicit or receive drug sample donations, have also been eliminated.
    Proposed Sec. 203.39(b)(8), which required the donor of a drug
sample to prepare a donation record for drug samples delivered by mail
or common carrier, has been eliminated. Under Sec. 203.39(e) of the
final rule, the charitable institution to which a drug sample is
donated must prepare a donation record for the sample regardless of the
manner of delivery of the drug sample and must retain the record for at
least 3 years. Proposed Sec. 203.39(b)(9) has been revised to require
that the donation record contain

[[Page 67724]]

only the name, address, and telephone number of the donating licensed
practitioner or charitable institution; the manufacturer, brand name,
quantity, and lot or control number of the drug sample donated; and the
date of the donation.
    Proposed Sec. 203.39(b)(11) has been revised to eliminate the
proposed requirement that the inventory of donated drug samples in the
possession of a charitable institution be conducted using independent
inventory personnel. Proposed Sec. 203.39(b)(12), which required that a
charitable institution provide written certification to the donating
party that it is in compliance with part 203, has been eliminated in
the final rule. Finally, proposed Sec. 203.39(c) has been eliminated,
but its requirements have been incorporated into the introductory
paragraph of Sec. 203.39 such that charitable institutions may donate
donated drug samples to other charitable institutions as long as
Sec. 203.39 is followed.

I. Charitable Donations of Prescription Drugs Generally

    Since the publication of the March 1994 proposal, the agency has
received requests that raise questions about whether and how PDMA
should be applied to charitable donations of prescription drugs
generally, not just drug samples. Nonsample drug products may be
donated to charitable institutions from many different sources,
including manufacturers, wholesale distributors, retail pharmacies, for
profit and nonprofit hospitals and health care entities, other
charitable groups, and reverse distributors (i.e., wholesale
distributors that handle returns). In addition, FDA is aware that drug
salvagers may also be a source of donations.
    The donation of nonsample drug products to charitable institutions
raises similar concerns about the quality of the drugs being donated
and potential drug diversion as the donation of drug samples. Moreover,
such donations constitute distribution of a prescription drug to other
than a consumer or patient and therefore could be considered
``wholesale distribution'' under section 503(e)(4)(B) of the act.
Although the agency is not establishing controls for nonsample
prescription drug donations at this time, the agency is carefully
considering the relevant issues and may in the future propose an
approach to drug donations that encompasses both prescription drug
samples and nonsample prescription drug products.

J. Creation and Maintenance of Required Forms, Reports, Records, and
Signatures

    Proposed Sec. 203.60 set forth standards for the creation and
maintenance of sample request and receipt forms, reports, records, and
other documents required under PDMA and part 203. Proposed
Sec. 203.60(a) permitted any required document to be created either on
paper or on electronic media. Proposed Sec. 203.60(b) permitted any
required document created on paper to be maintained on paper or by
photographic or electronic imaging, provided the security and
authentication requirements in Sec. 203.60(d) were met. Proposed
Sec. 203.60(c) permitted required documents created electronically to
be stored using computer technologies, provided the requirements in
Sec. 203.60(d) were met. Proposed Sec. 203.60(d) provided that required
documents and signatures must be created, maintained, or transmitted in
a form providing reasonable assurance of being: (1) Resistant to
tampering, revision, modification, fraud, unauthorized use, or
alteration; (2) preserved in accessible and retrievable fashion; and
(3) visible or readily made visible for purposes of review by regulated
industry and FDA.
    In addition to the requirements in proposed Sec. 203.60, proposed
Sec. 203.61 permitted signatures on required forms, reports, and
records to be made by means of a writing or marking instrument such as
a pen or indelible pencil. The section also permitted signatures to be
made by electronic stylus on an electronic pad or by other electronic
medium, provided the security requirements in Sec. 203.61(b) were met.
    In the Federal Register of March 20, 1997 (62 FR 13430), the agency
issued final regulations on electronic records and electronic
signatures in part 11 (21 CFR part 11). Because of the issuance of
those regulations and the applicability of part 11 to part 203 document
and signature requirements, the March 1994 proposal has been
substantially revised. Under part 11, electronic records, electronic
signatures, and handwritten signatures executed to electronic records
that meet the requirements of that part may be used to meet
requirements to create and maintain records and signatures under the
act and agency regulations, unless specifically excepted by future
regulations. Therefore, sections of the March 1994 proposal setting
forth requirements relating to creation and maintenance of electronic
records, electronic signatures, and handwritten signatures, as those
terms are defined in part 11, have been revised or eliminated in the
final rule.
    Proposed Sec. 203.60(a) has been deleted and replaced in the final
rule by revised Sec. 203.60(a)(1), (a)(2), and (a)(3). Revised
Sec. 203.60(a)(1) states that electronic records, electronic
signatures, and handwritten signatures executed to electronic records
may be used in lieu of paper records and handwritten signatures
executed on paper to meet any of the record and signature requirements
of PDMA or part 203, provided that the requirements of part 11 are met.
Although electronic signatures, electronic records, and handwritten
signatures executed on electronic records would be permitted to meet
PDMA and part 203 records and signature requirements under the
provisions of part 11 without further rulemaking in part 203 (see,
e.g., Sec. 11.1), this section has been included in the final rule for
added clarity. The final rule also defines the terms electronic record,
electronic signature, and handwritten signature in revised
Sec. 203.3(k), (l), and (p), respectively, to have the same meaning
that these terms have in Sec. 11.3(b)(6), (b)(7), and (b)(8).
    Revised Sec. 203.60(a)(2) permits combinations of paper records and
electronic records, electronic records and handwritten signatures
executed on paper, and paper records and electronic signatures or
handwritten signatures executed to electronic records to be used to
meet PDMA record and signature requirements, provided that the
requirements of part 11 are met for the electronic component. In
addition, a reasonably secure link must exist between the paper-based
and electronic components to ensure that the combined records and
signatures are trustworthy and reliable and the signer cannot readily
repudiate the signed record as not genuine. A reasonably secure link
could consist of a physical link between the electronic and paper-based
records (i.e., where the paper-based record(s) and a computer disk
containing the electronic record(s) are sealed together in a container
and a chain of controlled custody for the sealed container is
established) or a technology-based link. The agency is planning to
issue in the future further guidance on technology-based links in
conjunction with its implementation of part 11.
    Revised Sec. 203.60(a)(3) clarifies that the ``record and signature
requirements'' to which Sec. 203.60(a)(1) and (a)(2) refer include drug
sample request and receipt forms, reports, records, and any other types
of documents and their associated

[[Page 67725]]

signatures required by PDMA or part 203.
    Because part 11 does not apply to the photographic imaging of paper
records, proposed Sec. 203.60(b) has been retained in the final rule.
The section has been revised, however, to clarify that electronic
scanning of paper records into a computer creates an electronic record
that is subject to the requirements of part 11. The security and
authentication requirements in proposed Sec. 203.60(d) have been
renumbered in the final rule as Sec. 203.60(c) and revised such that
the requirements in the section apply only to documents and signatures
that are created on paper and that are maintained by photographic
imaging or transmitted electronically. Minor revisions have also been
made to the security and authentication requirements in revised
Sec. 203.60(d)(3).
    The requirements for maintenance of documents created by electronic
means in proposed Sec. 203.60(c) and the signature requirements in
proposed Sec. 203.61 have been superseded by part 11 requirements.
Therefore, these sections have been deleted in their entirety in the
final rule. Proposed Sec. 203.60(e) and (f) have been renumbered in the
final rule as Sec. 203.60(d) and (e).

K. Implementation of the Final Rule

    The provisions in the final rule will become effective 1 year after
the date of publication of the final rule in the Federal Register. The
agency is providing this period to give industry sufficient time to
implement systems for prescription drug sample distribution and
wholesale distribution that are in compliance with the final rule.

III. Comments on the Proposed Rule

A. General Comments

    FDA received 56 comments on the March 1994 proposal from
prescription drug manufacturers, industry organizations, professional
associations and organizations, law enforcement agencies, and others.
Although most of the comments addressed only specific provisions of the
rule, a few commented generally on the proposed rule, and those
comments were mixed. For example, one comment stated that it ``supports
the controls on prescription drug samples sought through the passage of
PDMA and feels that, in general, the proposed rule is a positive step
in combating the market in diverted prescription drugs and ensuring
consumers that drug products continue to remain safe and effective.''
Another comment, however, stated that ``finalization of the proposed
rule will create unnecessary additional administrative burdens for
companies and their sales representatives'' and ``would not improve
significantly the industry's ability to track sample distribution and
reduce the possibility of diversion of samples.''
    A large number of comments addressed the provisions of the proposed
rule relating to sample distribution. In fact, comments were received
on almost all of the sections of the proposed rule dealing with sample
distribution. Most of these comments were critical of the manner in
which the agency proposed to implement the sample distribution
requirements contained in PDMA. In addition to comments on sample
distribution, comments were received on sections of the proposed rule
relating to reimportation of prescription drugs, resales of
prescription drugs purchased by health care entities, recordkeeping and
investigation requirements, and wholesale distribution.
    Specific issues raised by the comments and the agency's responses
follow.

B. Definitions

    Blood component. Proposed Sec. 203.3(d) defined ``blood component''
as ``that part of a single-donor unit of blood separated by physical or
mechanical means.''
    1. One comment requested clarification on whether various plasma
products and derivatives, including antihemophilic factor, Factor IX,
Factor IX Complex, and immune globulin IV, are considered blood
components or drugs. The comment also asked for clarification of
whether the agency makes a distinction between human and recombinant
products in deciding whether to categorize a blood component
preparation as a blood component or drug.
    The agency advises that blood components, as defined in
Sec. 203.3(d) of the final rule, include red blood cells, plasma, fresh
frozen plasma, cryoprecipitated AHF, and platelets. Antihemophilic
Factor, Factor IX Complex, and immune globulin products are derivatives
of blood, not blood components. Both blood components and blood
derivatives are regulated as biologics under the authority of the
Public Health Service Act (the PHS Act) and are also drugs under
section 201(g)(1) of the act (21 U.S.C. 321(g)(1)). Products
manufactured through recombinant technology that mimic blood
derivatives or other biological products are also regulated as
biologics under the PHS Act and are drugs under section 201(g)(1) of
the act. These products, like blood derivatives, are not blood
components.
    Distribute. Proposed Sec. 203.3(h) defined ``distribute'' to mean
to sell, offer to sell, deliver, or offer to deliver a drug to a
recipient, except that the term ``distribute'' does not include the
providing of a drug sample to a patient by:
    (1) A practitioner licensed to prescribe such drug,
    (2) A health care professional acting at the direction and under
the supervision of such a practitioner, or
    (3) The pharmacy of a hospital or of another health care entity
that is acting at the direction of such a practitioner and that
received such sample in accordance with the act and regulations.
    On its own initiative, the agency is revising proposed
Sec. 203.3(h) in the final rule to specify that the term ``distribute''
does not include the delivery of drugs or offer to deliver drugs by a
common carrier in the usual course of its business as a common carrier.
This revision is necessary to permit common carriers that deliver drug
samples, or perform duties incidental to delivery (i.e., delivery
verification) for manufacturers or authorized distributors of record,
to do so without being required to be authorized distributors of
record.\1\ Such a requirement would be confusing and inconsistent with
language in section 503(d) of the act, which distinguishes between
sample distribution and delivery by mail or common carrier. However,
comarketers, fulfillment houses, and other entities that perform some
or all of the functions associated with sample distribution and
promotion that would otherwise be performed by the drug manufacturer
are not covered by this exception. Thus, entities that create and
maintain required forms, reports, and records; have their own sales
forces and representatives; solicit and fill requests for drug samples;
or conduct other such activities are engaged in drug sample
distribution and must be authorized distributors of record.
---------------------------------------------------------------------------

    \1\ Under the proposed rule, delivery of drug samples would
constitute drug sample distribution. Under section 503(d) of the
act, only a manufacturer or authorized distributor of record may
distribute drug samples.
---------------------------------------------------------------------------

    Health care entity. Proposed Sec. 203.3(n) defined ``health care
entity'' as ``any person that provides diagnostic, medical, surgical or
dental treatment, or chronic or rehabilitative care, but does not
include any retail pharmacy or any wholesale distributor. A person
cannot simultaneously be a `health care entity'

[[Page 67726]]

and a retail pharmacy or wholesale distributor.''
    2. Several comments noted that, under the proposed definition of
health care entity, full-service blood centers that currently function
both as health care entities and distributors of blood plasma
derivatives would not be permitted to continue to operate in both of
these capacities. The comments expressed concern that the ability of
community health care entities to obtain plasma derivatives would be
detrimentally affected if community blood centers were prohibited from
distributing them.
    One comment explained that plasma derivatives are unique
prescription drugs that are largely distributed outside the typical
drug distribution network. The comment stated that, historically, blood
centers and hospital blood banks have provided plasma processing and
distribution services for their local communities. Although the
processing has become more complex and is now done largely by for-
profit manufacturers, blood centers, hospital blood banks, and
transfusion services still act as final distributors of plasma
derivatives. The comment said that this arrangement enables the health
care providers who receive blood derivatives to use the ``expert
consultative services'' of these entities.
    Several comments stated that the same reasons for excluding blood
and blood components intended for transfusion from PDMA's sales
restrictions are applicable to blood derivatives. The comments
contended that there is no indication in the legislative history that
the types of abuses that lead to the restrictions in section 503(c)(3)
of the act are present with blood derivatives or that Congress intended
the restrictions in section 503(c)(3) of the act to apply to blood
derivatives.
    The comments suggested ways in which the proposed rule could be
amended to allow blood centers to continue to function as wholesale
distributors of plasma derivatives. Two comments suggested specifically
excluding blood banks, transfusion services, and hospital blood banks
from the prohibition against a health care entity simultaneously being
a wholesale distributor. Another comment recommended that FDA eliminate
entirely the prohibition against a health care entity simultaneously
being a wholesale distributor with a clarification in the preamble to
the final rule that health care entities engaging in ``sham''
operations to avoid resale prohibitions remain subject to enforcement
of resale prohibitions, even if licensed as a wholesaler. One comment
suggested expanding the definition of ``blood'' or ``blood components''
to include plasma derivatives.
    The agency declines to revise the definition of health care entity
or otherwise revise the proposed rule to permit health care entities to
engage in the wholesale distribution of blood derivatives or other
prescription drug products. The statutory restrictions in section
503(c)(3)(A) of the act prohibit the sale, purchase, or trade of, or
offer to sell, purchase, or trade prescription drugs that are purchased
by a public or private hospital or health care entity or donated or
supplied at a reduced price to a charitable organization. Because blood
derivatives are prescription drugs that are neither blood nor blood
components, a hospital or health care entity that purchases these
products from a manufacturer or distributor, or a charitable
institution that receives these products through a donation or at a
reduced price, may not sell or trade these products except as permitted
under section 503(c)(3)(B) of the act and Sec. 203.22 of the agency's
regulations.\2\
---------------------------------------------------------------------------

    \2\ For example, the proposed definition of health care entity
would not prevent a hospital, health care entity, or charity from
purchasing blood derivatives and administering them to patients
under a valid prescription.
---------------------------------------------------------------------------

    The agency is unpersuaded by the comments that blood derivatives
should, as a matter of public health policy, be grouped with blood and
blood components intended for transfusion as products that Congress did
not intend to cover under PDMA generally, or under section 503(c)(3)(A)
of the act specifically. In the September 1990 proposal, the agency
stated that if PDMA and, in particular, PDMA's restrictions on the
resale of prescription drugs were considered applicable to blood and
blood components intended for transfusion, the result would be to
seriously impede the present blood distribution system and thereby
substantially interfere with, and reduce, the nation's blood supply.
Based largely on this ``untenable result,'' the agency stated its
belief that Congress did not intend to subject blood and blood
components to PDMA's provisions (55 FR 38027).
    The comments contend that, as with whole blood and blood components
intended for transfusion, the supply of blood derivatives to the public
would be impeded if blood banks were not permitted to distribute these
products. However, unlike whole blood and blood components, blood
derivatives are manufactured in large quantities by manufacturers that
are independent of blood banks and blood centers, are packaged and
stored similarly to other pharmaceuticals, and have relatively normal
shelf lives. Moreover, blood derivatives need not be matched from a
donor to a donee as do whole blood and blood components intended for
transfusion. Thus, although in some instances blood derivatives are
distributed by blood centers and hospital blood banks, they also are
distributed by conventional drug wholesalers. There is no evidence
before the agency at this time that a substantial percentage of the
nation's supply of blood derivatives is currently distributed by blood
centers, hospital blood banks, or transfusion services, or that the
nation's supply of blood derivatives would be seriously impeded if
these entities were prohibited from distributing these products.
    Moreover, the comments' assertion that blood derivatives, like
blood and blood components, are not subject to the abuses Congress set
out to remedy in PDMA is speculative and unsupported by facts. As
discussed previously, blood derivatives are distributed through a
normal wholesale distribution system, and they need not be matched to
specific patients. Thus, the possibility of diversion of these products
exists, and documented instances of diversion of these products have in
fact occurred. The fact that blood derivatives were not specifically
mentioned by Congress in the legislative history is in itself of little
significance.
    FDA recognizes that, in addition to selling blood derivatives to
community hospitals, blood centers have traditionally provided advice
and guidance on how to use the derivatives. The final rule does not
prohibit the provision of information by a health care entity to
another health care entity, but rather prohibits the selling of
prescription drug products, including blood derivatives, that are
purchased by a hospital or health care entity. Thus, blood centers or
other entities that have traditionally provided information to
hospitals or other health care centers are not precluded from doing so
under PDMA or the final rule.
    3. One comment stated that FDA's definition of health care entity
is ``without factual or legal foundation.''
    Two comments stated that FDA's interpretation of section 503(c)(3)
of the act as prohibiting a health care entity from simultaneously
being a wholesale distributor is contrary to the plain language of the
statute and to legislative intent, and places inappropriate
restrictions on the legitimate operations of blood centers. These
comments interpreted the last sentence in section

[[Page 67727]]

503(c)(3)(A) of the act, which states in part that ``[f]or purposes of
this paragraph, the term `entity' does not include a wholesale
distributor of drugs or a retail pharmacy licensed under State law,''
as creating an exemption to the sales restrictions in that section for
health care entities that are State licensed as wholesale distributors.
The comments stated that FDA's proposed definition of ``health care
entity'' contradicts the clear wording of the statute. The comments
also stated that the proposed definition is inconsistent with
legislative intent to permit health care entities acting as legitimate
wholesalers to engage in wholesale distribution of prescription drugs.
    The agency acknowledges that the first clause of the last sentence
in section 503(c)(3) of the act could be read to make the restrictions
in section 503(c)(3)(A) of the act inapplicable to hospitals or health
care entities State licensed as wholesale distributors. However, the
agency believes that the statutory language should be read to mean that
health care entities subject to the restrictions in section
503(c)(3)(A) of the act cannot simultaneously be wholesale distributors
or retail pharmacies. As noted by the agency in the proposed rule (59
FR 11842 at 11845), the former interpretation is inconsistent both with
general rules of statutory construction and with legislative intent. If
this interpretation were to be given effect, it would mean that a
health care entity could circumvent the sales restrictions by obtaining
a State wholesale distribution license. Such an interpretation would
deprive the sales restrictions of any force or effect. Moreover,
Congress expressly enumerated in section 503(c)(3)(B) of the act the
circumstances under which drugs purchased by a health care entity may
be sold. The agency believes that if Congress had intended to permit
sales of prescription drugs purchased by health care entities that are
State licensed wholesale distributors, it would have done so under
section 503(c)(3)(B) of the act.
    Interpreting section 503(c)(3) of the act in the manner suggested
by the comments would also be inconsistent with legislative intent as
reflected in the congressional findings and legislative history. The
statutory restrictions in section 503(c)(3)(A) of the act reflect the
congressional finding in section 2(7) of PDMA that the resale of
prescription drugs by health care entities at below wholesale prices
had helped to fuel the diversion market and constituted an unfair form
of competition to legitimate wholesalers and retailers paying
prevailing market prices. These same concerns also were expressed by
Congress in the legislative history. (See H. Rept. 100-76, pp. 12-13.)
If health care entities were permitted to obtain State wholesale
distributor licenses and engage in wholesale distribution of
prescription drugs, as suggested by the comments, there would be no way
of ensuring that the types of abuses that Congress sought to prevent in
section 503(c)(3)(A) of the act would not occur. Neither the
requirements applicable to wholesale distributors in section 503(e) of
the act nor the State licensing guidelines in part 205 contain
requirements to deter a health care entity from reselling prescription
drugs, or require or authorize FDA to keep track of the circumstances
under which prescription drugs are bought and sold by wholesale
distributors. Thus, if health care entities were permitted to be State
licensed wholesale distributors, they could purchase drugs for their
own use and sell them on the secondary wholesale market with impunity
and without the knowledge of the agency or Congress. The agency does
not believe that Congress intended such a result.
    Licensed practitioner. Proposed Sec. 203.3(o) defined ``licensed
practitioner'' as ``any person licensed by State law to prescribe
drugs.''
    4. One comment recommended that ``or authorized'' be added after
``licensed'' in the definition to allow nonphysician practitioners
subject to State authorization schemes other than licensing to obtain
drug samples.
    The agency has decided to follow the suggestion of the comment and
revise the definition of ``licensed practitioner'' in the final rule to
include practitioners authorized by State law to prescribe drugs.
Congress stated in the legislative history (S. Rept. 100-303, p. 5)
that ``Drug samples may only be distributed to practitioners licensed
or authorized by State law to prescribe such drugs.'' Moreover, the use
by Congress of the term ``licensed practitioner'' rather than
``physician'' in section 503(d)(2)(A) of the act shows congressional
intent to allow nonphysician practitioners to obtain drug samples.
Because a significant number of these practitioners are subject to
different State authorization schemes than licensing, the agency finds
that a strict interpretation of the word ``license'' would be
inconsistent with congressional intent.
    5. One comment stated that, in some States, advanced practical
nurses are licensed to prescribe certain drugs, but are prohibited from
obtaining samples of the same drugs. The comment asserted that, under
the proposed definition of ``licensed practitioner,'' such nonphysician
practitioners would be permitted to obtain samples.
    In developing the proposed definition of licensed practitioner, the
agency was not aware that some States may permit practitioners to
prescribe certain drugs, but prohibit them from obtaining samples of
those drugs. Because the agency does not wish to interfere with States'
authority to determine who may request and receive drug samples, the
agency clarifies that a practitioner who is prohibited by State law
from receiving samples of certain types of drugs is not permitted to do
so under PDMA even though he or she is licensed or authorized to
prescribe those drugs.
    Ongoing relationship. Proposed Sec. 203.3(r) defined ``ongoing
relationship'' as an association that exists when a manufacturer and a
distributor enter into a written agreement under which the distributor
is authorized to sell the manufacturer's products for a period of time
or for a number of shipments, at least one sale is made under that
agreement, and the name of the authorized distributor of record is
entered on the manufacturer's list of authorized distributors of
record.
    6. One comment objected to a requirement for a written agreement
between a manufacturer and a distributor. The comment stated that
written agreements are not customary in the industry and that such a
requirement would be burdensome because distributors distribute for
large numbers of vendors. The comment recommended that, for the
purposes of proving that an ongoing relationship exists, it should be
sufficient to show that sales are made on a continuing basis and that
the distributor's name appears on the manufacturer's list of authorized
distributors.
    Another comment objected both to the requirement for a written
agreement and to the requirement that a distributor be on the
manufacturer's list of authorized distributors of record. The comment
stated that neither of these requirements was previously required by
the agency in compliance information provided to industry by the
agency. The comment stated that both requirements would make it more
difficult for distributors to become authorized distributors of record.
In addition, the comment stated that the requirements would give
prescription drug manufacturers the ability to deny authorized-
distributor-of-record status to distributors with whom they have
engaged in ongoing business relationships. The comment stated that by
giving drug manufacturers the power to decide to whom PDMA wholesale
distribution requirements apply without oversight or review, FDA would
be

[[Page 67728]]

delegating legislative power to the private sector in violation of
separation of powers principles in the U.S. Constitution. The comment
recommended that FDA adopt a definition of ongoing relationship that
mirrors a definition set forth by the agency in a 1988 compliance
letter.
    PDMA defines the term ``authorized distributors of record'' as
those distributors with whom a manufacturer has established an ongoing
relationship to distribute the manufacturer's products. PDMA does not,
however, define what constitutes an ``ongoing relationship.'' In a 1988
letter issued by FDA (see Letter from Daniel L. Michels, Director,
Office of Compliance to Regulated Industry, Docket No. 88N-258L, August
1, 1988), the agency made its first attempt to interpret the term in
the context of PDMA. FDA stated that ``ongoing relationship'' may be
interpreted to mean a continuing business relationship in which it is
intended that the wholesale distributor engage in wholesale
distribution of a manufacturer's prescription drug product or products.
The agency stated that evidence of such intent could include, but would
not be limited to, the existence of a written franchise, license, or
other distribution agreement between the manufacturer and wholesale
distributor and the existence of ongoing sales by the manufacturer to
the distributor.
    The agency continues to believe that the term ``ongoing
relationship'' in the context of wholesale distribution infers a
continuing business relationship between a distributor and a
manufacturer where the intent exists to engage in wholesale
distribution. Furthermore, the agency has determined that, to
facilitate compliance with and enforcement of the act, it is necessary
to have a formalized way of establishing that an ongoing relationship
exists. A written agreement in which the manufacturer authorizes the
distributor to distribute some or all of its products for a period of
time or for a number of shipments will provide a clear and verifiable
expression of the parties' intent to engage in a continuing business
relationship. The written agreement required by proposed Sec. 203.3(r)
(revised as Sec. 203.3(u)) need not rise to the level of a contract or
create legally enforceable obligations on the parties. Rather, the
agreement need only state that the distributor is authorized to
distribute a manufacturer's products for a period of time or for a
number of shipments and, if the distributor is not authorized to
distribute all of the manufacturer's products, identify those products
to which the authorization extends.\3\ This latter requirement,
although not included in the proposed rule, is consistent with the
requirement in proposed Sec. 203.50(c)(1) for manufacturers to maintain
a list of authorized distributors that specifies whether distributors
are authorized to distribute the manufacturer's full product line or
only particular products.
---------------------------------------------------------------------------

    \3\ The written agreement required under Sec. 203.3(u) to
establish an ongoing relationship constitutes a ``required record''
under revised Sec. 203.60, and must be made available, upon request,
to FDA or other Federal, State, or local regulatory or law
enforcement officials for review and reproduction.
---------------------------------------------------------------------------

    Given the relative ease with which the agreement required by
Sec. 20.3(u) can be created, the agency believes that it is highly
unlikely that a manufacturer would refuse to enter into a written
agreement with a distributor with whom it wishes to have a continuing
business relationship. Moreover, it is clearly not the agency's intent
in requiring a written agreement to confer additional discretion on
manufacturers, but rather to implement the requirement in the act for
an ongoing relationship in a manner in which it can be efficiently
enforced. This is consistent with the agency's authority under section
701(a) of the act (21 U.S.C. 371(a)) to issue regulations for the
efficient enforcement of the act. Accordingly, the agency declines to
revise the definition of ``ongoing relationship'' to eliminate the
requirement for a written agreement.
    Finally, on its own initiative, the agency has revised the proposed
definition of ``ongoing relationship'' in the final rule to eliminate
the requirement that at least one sale be completed under the written
agreement and that a distributor be entered on the manufacturer's list
of authorized distributors of record. The proposed requirement for a
completed sale under the written agreement is unnecessary and, as
discussed below, inconsistent with the use of the definition in the
context of sample distribution. The proposed requirement that a
distributor be entered on the manufacturer's list of authorized
distributors of record is unnecessary in light of the requirement, in
section 503(e)(1)(B) of the act and revised Sec. 203.50(d) of the final
rule, that manufacturers keep an updated list of authorized
distributors of record at their corporate offices.
    7. Another comment stated that sample fulfillment houses, mailing
services, comarketers, and similar entities clearly distribute samples
within the meaning of ``distribute'' in proposed Sec. 203.3(h), but
cannot satisfy the requirements for an ongoing relationship in proposed
Sec. 203.3(r) necessary to be considered authorized distributors of
record. The comment recommended that the proposed definition of ongoing
relationship be revised to permit these entities to be authorized
distributors of record.
    The comment raises a valid point. The proposed definition of
ongoing relationship is inappropriate for sample distribution, and has
been revised in the final rule to specify that an ongoing relationship
exists when there is a written agreement between a manufacturer and
distributor to distribute, rather than to sell, the manufacturer's
products for a period of time or for a number of shipments.
    Prescription drug. Proposed Sec. 203.3(v) defined ``prescription
drug'' as any drug required by Federal law to be dispensed only by a
prescription, including finished dosage forms, bulk drug substances,
and active ingredients subject to section 503(b) of the act.
    On its own initiative, the agency has removed ``active
ingredients'' in the final rule. The term ``bulk drug substance,'' as
defined under Sec. 203.3(e), is synonymous with ``active ingredient.''
    Wholesale distribution. Proposed Sec. 203.3(y) defined ``wholesale
distribution'' as ``distribution of prescription drugs to persons other
than a consumer or patient, but does not include: (1) Intracompany
sales * * *.''
    8. One comment objected to the exemption of intracompany sales from
wholesale distribution, stating that it ``totally gets away from the
original intent of the PDMA.'' The comment said that this provision
leaves a gap where diversion can occur between wholesalers and retail
outlets owned by them.
    The agency disagrees with the comment. Intracompany sales were
expressly excluded by Congress from the definition of wholesale
distribution in section 503(e)(4)(B) of the act. In addition, both the
House and Senate reports referred to the exclusion. (See H. Rept. 100-
76, S. Rept. 100-303.) The House report stated:
    [i]t is the express intent of the Committee that the scope of
[this section] include distribution by chain drug warehouses,
wholesale drug warehouses, and all sellers of prescription drugs in
wholesale quantities to persons or firms other than the consumer or
patient. With respect to section 503(e)(1), intracompany sales,
i.e., the distribution between divisions and companies having the
same ownership, are excluded.
(H. Rept. 100-76, p. 17.)
Thus, as expressed in the language of the act and the legislative
history, Congress' intent was to exclude intracompany sales from the
requirements for wholesale distribution in section 503(e) of the act.
In addition,

[[Page 67729]]

the agency advises that Sec. 205.5 contemplates a licensing scheme for
business entities with subsidiaries, affiliates, and more than one
facility (see Sec. 205.5(b)), and provides that State licensing
authorities require each wholesale distributor to supply information on
all facilities used by the licensee for the storage, handling, and
distribution of prescription drugs (see Sec. 205.5(a)(3)).

C. Reimportation

    Proposed Sec. 203.10 stated, in relevant part, that ``[n]o
prescription drug that was manufactured in a State and exported from
the United States may be reimported by anyone other than its
manufacturer.''
    9. One comment requested that the proposed rule be revised to state
that a prescription drug may be reimported by any of a manufacturer's
subsidiary companies or contract manufacturers.
    For the reasons discussed in the preamble to the proposed rule (59
FR 11842 at 11844), FDA is adopting the definition of manufacturer set
forth in Sec. 201.1 (21 CFR 201.1) of the agency's regulations for the
purposes of part 203. Accordingly, a manufacturer's subsidiary
companies or contract manufacturers may reimport a prescription drug
product only if they also qualify as a manufacturer of the drug product
under Sec. 201.1.
    10. One comment recommended that language be added to the section
to include drugs that are sold by a manufacturer for exportation, but
never leave the United States. The comment stated that a large
proportion of the ``export'' drugs that are diverted never actually
leave the United States.
    Because the drugs referred to by the comment are not exported, they
cannot be subject to the restriction on reimportation. However, the
domestic distribution of such drugs is covered by PDMA and other
applicable laws, which should help to reduce the potential for
diversion.

D. Sales Restrictions

    Proposed Sec. 203.20 prohibited the sale, purchase, or trade of, or
offer to sell, purchase, or trade, any prescription drug that was
purchased by a public or private hospital or health care entity or
donated or supplied at a reduced price to a charitable institution.
1. Section 203.22(e)
    Proposed Sec. 203.22(e) provided that Sec. 203.20 does not apply
to: ``The sale, purchase, or trade of a drug, an offer to sell,
purchase, or trade a drug, or the dispensing of a drug under a valid
prescription.''
    11. A health care organization requested that FDA clarify whether,
under this section, its nonprofit affiliates may provide prescription
drugs obtained at a nominal cost to patients under a prescription,
where the amount charged for the drug varies depending on the patient's
ability to pay.
    Section 203.20 does not prohibit a health care entity from
obtaining prescription drugs at reduced cost. Rather, it prohibits
reselling those drugs except in specified ways. Section 203.22(e)
allows the resale of drugs by a health care entity under a valid
prescription. The amount of profit derived from such a sale, or the
lack thereof, is not addressed by Sec. 203.22(e). Therefore, a health
care entity may, subject to other applicable laws, resell prescription
drugs to patients under a valid prescription at varying prices.
2. Section 203.22(f)
    Proposed Sec. 203.22(f) provided that Sec. 203.20 does not apply
to:
    The sale, purchase, or trade of a drug or the offer to sell,
purchase, or trade a drug by hospitals or health care entities owned
or operated by Federal, State, or local governmental units to other
hospitals or health care entities owned or operated by Federal,
State, or local governmental units.
    12. One comment opposed this exclusion. The comment argued that
government employees are just as apt to engage in drug diversion
activities as are private sector employees. The comment stated that the
potential for drug diversion is even greater in the public sector
because Federal and State hospitals and health care entities often
receive more favorable pricing terms than private hospitals. The
comment also stated that the exclusion ``appears self serving'' and is
not supported by the legislative record.
    FDA disagrees with this comment. As the agency explained in the
preamble to the proposed rule (59 FR 11842 at 11847), any profits from
legitimate sales of prescription drugs by government hospitals would
accrue to government treasuries. Thus, no financial incentive exists
for a government hospital or health care entity, or its representatives
acting in an official capacity, to engage in diversion. Given the lack
of financial incentive, the amount of profit that could be realized due
to the prices at which government hospitals may receive prescription
drugs is irrelevant. Moreover, although it is possible that individual
employees may steal drugs or obtain them by other criminal methods and
sell them, criminal conduct by individual employees was not intended by
Congress to be addressed by the sales restrictions. Rather, it was the
legal resale of drugs obtained by hospitals and health care entities,
and the potential profit accruing to those entities from such sales,
with which Congress was concerned in enacting the sales restrictions.
    Finally, the agency disagrees that the exclusion is not supported
by the legislative record. As discussed previously and in the proposed
rule (59 FR 11842 at 11846 and 11847), the prohibition against sales by
hospitals or health care entities was prompted in part because of the
temptation for such entities to sell for profit drugs acquired at below
wholesale prices. Because no financial incentive exists for government
hospitals to profit from sales to other government hospitals, it is
unlikely that such sales would result in the kinds of abuses that PDMA
sales restrictions were designed to prevent.
    In addition, Congress expressly created exclusions permitting,
among other things, sales between hospitals or health care entities
under common control and emergency sales by hospitals or health care
entities to retail pharmacies to allow for the provision of health care
to patients. (See H. Rept. 100-76, 13). As discussed in the preamble to
the proposal (58 FR 11842 at 11846 and 11847), permitting prescription
drug sales between government hospitals and health care entities will
help such entities to provide health care services in response to
various needs, including the provision of health care to people with
low incomes and the distribution of vaccines. Thus, the exception is
consistent both with Congress' general objectives in enacting the sales
restrictions and with the rationale supporting other exemptions
expressly created by Congress.
3. Sections 203.23 and 203.24
    Proposed Secs. 203.23 and 203.24 set forth exemptions to the sales
prohibition contained in proposed Sec. 203.20. Proposed Sec. 203.23
provided an exemption for the revocation of a sale and purchase
transaction by a hospital, health care entity, or charitable
institution because of a mistake in ordering or delivery and the
reshipment of the prescription drug to a manufacturer or wholesale
distributor for a credit or refund. The section required that the drug
be shipped back to the manufacturer or distributor within 10 days and
that the reshipment be made under proper conditions for storage,
handling, and shipping. In addition, the section required that, if the
drug is reshipped to a wholesale distributor, the hospital, health care
entity, or charitable institution must provide written notice to the

[[Page 67730]]

manufacturer of the revocation and reshipment.
    Proposed Sec. 203.24 provided an exemption for the return of a
prescription drug purchased by a hospital or health care entity, or
acquired at a reduced price by or donated to a charitable institution,
to the manufacturer or the wholesale distributor that sold, donated, or
supplied the prescription drug. The section required that, if the drug
is returned to a wholesale distributor, the hospital, health care
entity, charitable institution, or distributor must notify the
manufacturer that the drug has been returned. In addition, the
hospital, health care entity, or charitable institution must prepare a
credit memo for all returns. The returning entity must forward a copy
of the memo to the manufacturer and retain a copy for its records. The
section also required that returned drugs be kept under proper
conditions for storage, handling, and shipping. Finally, the section
required that the value of any credit, refund, or exchange not exceed
the purchase price or, if a donation, the fair market price of the
returned product.
    13. One comment said that it generally supported the agency's
approach for allowing returns, but questioned the need for Sec. 203.23
and recommended that it be deleted in the final rule. According to the
comment, the agency's purpose for calling a return a revocation of
acceptance and reshipment was to address concerns that sales provisions
in the Uniform Commercial Code (UCC) could make a return a prohibited
resale under PDMA. The comment stated that by ``expanding on this
initial allowance of returned product and proposing Sec. 203.24, FDA
has shown that it has overcome UCC concerns and will not view a return
as a prohibited resale.''
    The agency agrees for the most part with the comment. Because
proposed Secs. 203.23 and 203.24 permit transactions and impose
notification and documentation requirements that are similar, and
because the situations in which returns would be permitted under
Sec. 203.23 would also be permitted by Sec. 203.24, the agency has
decided to withdraw proposed Sec. 203.23 and redesignate proposed
Sec. 203.24 as new Sec. 203.23 in the final rule. This will simplify
the regulation and eliminate potential confusion about whether proposed
Sec. 203.23 or Sec. 203.24 applies to a particular return. Under the
revised regulation, all prescription drugs returned by a hospital,
health care entity, or charitable institution to its supplier will be
regarded as ``returns'' and will be subject to the same requirements
for providing notice to the manufacturer, documenting the return, and
maintaining proper storage, handling, and shipping conditions.
    On its own initiative, the agency has decided not to include in
revised Sec. 203.23 the requirement in proposed Sec. 203.24(a) that a
hospital, health care entity, charitable institution, or distributor
notify the manufacturer that a prescription drug product has been
returned when the return is made to a wholesale distributor. Under
revised Sec.  203.23(a) and (b), the hospital, health care entity, or
charitable institution is already required to fill out a credit memo
documenting the return of a prescription drug and to forward a copy of
that memo to the manufacturer. The agency believes that the receipt of
the credit memo by the manufacturer should provide sufficient notice to
it of the source of a return, and the additional notice that would have
been required under proposed Sec. 203.24(a) is not necessary.
    14. One comment stated that the concerns addressed by the
requirements for notification of the manufacturer and documentation of
returns in the proposal is legitimate, but that health care entities
should not be ``held responsible for helping to police the wholesale
drug industry.'' The comment said that wholesalers should be required
to develop mechanisms for documentation and recordkeeping that would
achieve the desired goals of the regulation.
    The agency believes that the comment misconstrues the purpose of
the notice and documentation requirements. As the agency explained in
the proposal, the purpose of requiring that a credit memo be forwarded
to the manufacturer is to help ensure that any chargebacks or reduced
prices will be factored into a credit or refund provided by the
manufacturer to prevent windfall profits from the transaction (59 FR
11842 at 11847). There is a potential for such profits to be realized
not only by wholesale distributors, but by hospitals, health care
entities, and charities. Thus, the agency disagrees that the purpose of
providing notice is limited to policing the wholesale drug industry. In
addition, the agency believes that the returning hospital, health care
entity, or charity is in the best position to provide the information
required in the credit memo and, as the party that derives the benefit
from any special pricing provided by the manufacturer, should be
responsible for ensuring that returns are legitimate.
    15. Another comment stated that the resale restrictions were not
intended by Congress to cover normal and legitimate returns of
prescription drugs and that FDA is therefore not required or authorized
by PDMA to place requirements on returns. The comment said that the
provision of notice to a manufacturer when drugs are returned to a
wholesale distributor would constitute an unreasonable administrative
burden on manufacturers who do not provide a refund or credit in such
circumstances.
    As discussed in the proposal (59 FR 11842 at 11847), proposed
Secs. 203.23 and 203.24 were included to address the concern that,
subsequent to a completed sale, a return for cash, credit, or other
consideration could be viewed as a new and prohibited sales transaction
under section 503(c)(3)(A) of the act. Although the agency agrees that
Congress did not intend to prohibit legitimate returns of prescription
drugs, there is a potential for abuses to occur with returns. The
notice and documentation requirements in revised Sec. 203.23(a) and (b)
are necessary to help ensure that the returning entity or entities do
not profit unfairly by the return and that diversion of returned drugs
does not occur. Both of these goals are consistent with Congress'
intent in enacting the sales restrictions. (See sec. 2(7), PDMA, H.
Rept. 100-76, pp. 12-13.)
    16. One comment stated that proposed Secs. 203.23 and 203.24 should
be clarified so that prescription drugs that are returned to the
manufacturer for destruction are exempt from the restrictions in
Sec. 203.20, and thus need not adhere to the requirements in proposed
Secs. 203.23 and 203.24.
    The agency declines to provide the clarification sought by the
comment. Under Sec. 203.20, the sale, purchase, or trade of a
prescription drug purchased by a hospital or health care entity, or
donated or supplied at a reduced price to a charitable institution, is
prohibited unless the sale, purchase, or trade is exempt from
Sec. 203.20 under Sec. 203.22 or revised Sec. 203.23. When a
prescription drug that is purchased by a hospital, health care entity,
or charity is returned to the manufacturer for destruction and a credit
or refund is given for the return, the return constitutes a sale that
is prohibited by Sec. 203.20, unless the requirements of Sec. 203.23
are met. Similarly, the agency will consider the provision of
destruction services by a manufacturer or distributor at no or reduced
cost to the returning entity, relative to the fair market value for
such services, to constitute consideration supporting a sale. Thus,
returns of prescription drugs for destruction must meet the
requirements of Sec. 203.23, unless no credit or refund is given for
the return and the returning entity pays

[[Page 67731]]

the fair market value for the drugs' destruction.
    The conclusion reached above is fully consistent with the policy
underlying the requirements in Sec. 203.23. First, drugs that are
returned for destruction have the same potential to be diverted as
drugs that are returned for redistribution. The threat to the public
health from diversion of such drugs could be particularly severe
because they are presumably unsuitable for use. Therefore, it is
essential that drugs returned for destruction be subject to
documentation requirements that provide accountability over the return.
Additionally, there may be situations in which a returned drug that is
designated for destruction by a hospital, health care entity, or
charity may be deemed suitable for sale by the distributor or
manufacturer. For example, a drug returned because its outer packaging
was damaged may, after examination or testing is conducted by the
manufacturer as required by Sec. 205.50(e), prove to be fit for use.
Thus, returned drugs must be maintained under proper conditions for
storage, handling, and shipping, and written documentation reflecting
the maintenance of proper conditions must be provided to help ensure
that, if the returned drug is redistributed, it is safe and effective.
    17. One comment supported the requirements in proposed
Secs. 203.23(b) and 203.24(e) (new Sec. 203.23(c)) relating to
maintaining proper conditions for storage, handling, and shipping of
returned drugs and providing documentation of such conditions. The
comment said that wholesalers need the information to carry out their
obligations for handling returns under Sec. 205.50(e). The comment
recommended that documentation of proper return conditions should be
specifically nondelegable.
    Section 203.23(c) requires that a drug returned to a manufacturer
be stored and handled appropriately, according to its labeled storage
requirements, both while it is in the possession of a hospital, health
care entity, or charity, and during its return (i.e., during
reshipment). Prior to reshipment, only the hospital, health care
entity, or charity in physical possession of the drug knows and can
document whether the drug has been stored and handled appropriately.
However, because a common carrier or other third party may be used to
reship the drug, this party may provide documentation that the drug was
stored and handled properly during reshipment. Thus, if a returning
hospital, health care entity, or charity uses a common carrier or other
third party to reship drugs, the third party or carrier may create the
required documentation, and provide the documentation to the
manufacturer or distributor on delivery.
    The agency clarifies that, regardless of whether a common carrier
is used to reship the drug, the returning hospital, health care entity,
or charitable institution is responsible for complying with the
requirements of Sec. 203.23. Thus, if proper conditions were not
maintained during reshipment and/or if written documentation showing
that proper conditions were maintained during reshipment was not
provided to the manufacturer or wholesale distributor to which the
drugs are returned, the requirements of Sec. 203.23 would not be met
and the returning hospital, health care entity, or charitable
institution would be in violation of Sec. 203.20 of FDA regulations and
section 503(c)(3)(A) of the act.
    18. Proposed Sec. 203.24(d) required that the value of any credit
or refund not exceed the purchase price or fair market price of the
returned product. One comment stated that the provision would be
burdensome on manufacturers that currently calculate credits or refunds
based on the purchase price of the drug as of the date of return. The
comment also stated that it would be virtually impossible, without the
implementation of a costly, sophisticated system by the manufacturer,
to attach a cost to a specific item when it is not known when the item
was acquired. The comment recommended that the provision be revised to
allow the value of the return to be based on the purchase price of the
drug as of the date of the return.
    The agency's intent in proposing Sec. 203.24(d) was, as with the
notice provisions, to prevent hospitals, health care entities,
charities, or distributors from obtaining windfall profits from returns
at the expense of manufacturers. Thus, as proposed, the provision would
not make manufacturers responsible for ensuring that the amount of a
credit, refund, or exchange given for a drug does not exceed the
purchase price or, if a donation, the fair market value at the time the
donation was made. Instead, the section would make the returning
hospital, health care entity, or charitable institution responsible for
ensuring that it did not accept a credit, refund, or exchange that
exceeds the purchase price or fair market value at the time the drug
was purchased or donated. Nevertheless, FDA recognizes that in order to
comply with this provision, manufacturers would have to maintain
records of the price paid for a drug at the time it was purchased.
Because maintaining such records does not appear to constitute
customary industry practice and would impose additional costs and
burdens on manufacturers, the agency has revised Sec. 203.23 in the
final rule to eliminate the requirement that the value of any credit or
refund not exceed the purchase price or fair market price of the
returned product.

E. Samples

1. Sample Distribution by Mail or Common Carrier
    Proposed Sec. 203.30(a)(2) required that the recipient of a drug
sample distributed by mail or common carrier execute ``a written
receipt, as set forth in paragraph (c) of this section, when the drug
sample is delivered.'' Proposed Sec. 203.30(c) set forth the required
contents of the receipt for samples distributed to licensed
practitioners, and to designated pharmacies of health care entities.
Proposed Sec. 203.30(c) provided:
    * * * The receipt is to be on a form designated by the
manufacturer or distributor, and is required to contain the
following:
    (1) If the drug sample is delivered to the licensed practitioner
who requested it, the receipt is required to contain the name,
address, professional title, and signature of the practitioner or
the practitioner's designee who acknowledges delivery of the drug
sample; the proprietary or established name and strength of the drug
sample, the quantity, and the lot or control number of the drug
sample delivered; and the date of the delivery.
     (2) If the drug sample is delivered to the pharmacy of a
hospital or other health care entity at the request of a licensed
practitioner, the receipt is required to contain the name and
address of the requesting licensed practitioner, the name and
address of the hospital or health care entity pharmacy designated to
receive the drug sample; the name, address, professional title, and
signature of the person acknowledging delivery of the drug sample;
the proprietary or established name and strength of the drug sample,
the quantity, and the lot or control number of the drug sample
delivered; and the date of the delivery.
    19. Several comments stated that not all of the information
required to appear on the sample receipt form under proposed
Sec. 203.30(c) is necessary to confirm delivery of a sample. One
comment stated that the act only requires information sufficient to
verify that the sample received matches the sample requested and sent.
Another comment asserted that FDA does not have the authority under
PDMA to specify the content of the receipt, and that the only
information required by PDMA is the signature of the licensed
practitioner and any information

[[Page 67732]]

necessary to determine the identity of the sample and the recipients.
    The agency has determined that, with the exception of the proposed
requirement for the lot or control number of the sample (discussed
below in conjunction with comments on Secs. 203.30 and 203.31), the
information requirements in proposed Sec. 203.30(c) are necessary to
ensure that samples that are requested are received by the intended
recipient and that patterns of nondelivery of drug samples can be
identified. Both of these objectives are consistent with legislative
intent. (See H. Rept. 100-76 at 15.) The agency therefore declines to
eliminate or modify these requirements in the final rule.
    The information required under proposed Sec. 203.30(c) mirrors most
of the information required to appear on the sample request form under
proposed Sec. 203.30(b). This information is the minimum information
necessary to identify the type and quantity of drug samples being
requested and distributed, the requesting practitioner, and, if
applicable, the designated hospital or health care entity to which the
drug samples are to be delivered. The only information required by
proposed Sec. 203.30 to appear on drug sample receipt forms that is not
required to appear on request forms is the name, address, professional
title, and signature of the person acknowledging delivery of the drug
sample. This information is necessary to establish accountability for
receipt of drug samples when samples are delivered to a practitioner's
office and the requesting practitioner does not physically receive the
drug sample and sign the sample receipt or when samples are delivered
to a hospital or health care entity at the request of a practitioner.
    20. Several comments objected to the required information because
electronic delivery verification systems currently used by delivery
services and common carriers cannot accommodate the information.
According to the comments, current electronic delivery verification
systems are capable of recording some, but not all, of the required
information. The comments stated that to capture all of the required
information, a manufacturer or authorized distributor of record would
have to use a paper system independent of common carriers' delivery
verification, such as a business reply mail card. Several comments said
that paper systems involve more administrative costs and would result
in less compliance by practitioners than electronic delivery
verification. One comment stated that, using business reply mail cards,
it would take two to three followup letters to achieve compliance
within the 90 to 95 percent range. Another comment said that data may
be accessed faster and easier with electronic verification systems than
with business reply mail cards, since the data are stored
electronically rather than manually. Several comments recommended
revising the proposed rule to bring it into conformity with the
specific electronic delivery verification system used by the commenter.
Other comments recommended that the proposed rule be revised to state
that receipts used by common carriers as part of their normal course of
business are sufficient.
    The agency recognizes that manufacturers and authorized
distributors of record may not be able to comply fully with the sample
receipt content requirements in proposed Sec. 203.30(c) using
commercial carriers' electronic delivery acknowledgment systems.
Electronic delivery acknowledgment systems do not appear to be designed
to meet the specific informational requirements for sample receipts
under Sec. 203.30(c) at the present time. Thus, the use of business
reply mail cards or other types of paper systems capable of recording
the required information may be necessary. These systems may not be as
convenient for health care practitioners receiving samples to use as
electronic delivery acknowledgment systems and will probably be more
expensive for manufacturers and authorized distributors of record.
However, these disadvantages are not in themselves sufficient reason to
eliminate the informational requirements in proposed Sec. 203.30(c),
where no satisfactory alternatives exist to ensure that congressional
objectives for establishing controls on sample distribution are met.
    21. Two comments requested that FDA permit the use of combinations
of electronic and paper media to create the required receipt form.
Under the scenario presented by one of the comments, a receipt would be
signed by the practitioner or his designee at the time of delivery, but
it would not contain all of the required information. The information
not contained on the receipt would be maintained on a separate
electronic data base, which would be linked via a ``unique number'' to
the receipt. The other comment requested that the agency permit a
signature obtained through a carrier's normal delivery verification to
be ``added'' later to an electronic record containing all of the
required information.
    As discussed previously, the agency has revised proposed
Sec. 203.60 to permit manufacturers and authorized distributors of
record to create and maintain drug sample receipts and other records
using combinations of paper-based and electronic media. Under
Sec. 203.60(a)(2), combinations of paper records and electronic records
may be used provided: (1) The requirements of part 11 are met for the
electronic record, and (2) a reasonably secure link between the paper
record and electronic record exists to ensure that the combined records
are trustworthy and reliable and to ensure that the signer cannot
readily repudiate the signed record as not genuine. Neither of the
scenarios presented by the comments would ensure that a reasonably
secure link exists between the paper-based and electronic records
because the individual signing the receipt at the time of the sample
delivery would not know the contents of the receipt and thus could not
attest that the contents of the receipt are correct. Moreover, under
these circumstances, the signer could readily repudiate the signed
record as not genuine. Thus, neither of the scenarios would meet the
requirements of Sec. 203.60(a)(2).
    22. One comment requested clarification of whether the proposed
rule would supplant the March 2, 1993, guidance letter recommendations
on delivery confirmation of drug samples by common carriers.
    Any policy stated in that document, including the policy on
delivery verification, is superseded by the policies set forth in the
final regulation.
2. Sample Distribution by a Representative or Detailer
    a.  Section 203.31(a)(1) and (a)(2). Proposed Sec. 203.31(a)(1)
required that before a manufacturer or authorized distributor of record
distributes a drug sample to a licensed practitioner, it must receive a
signed, written request form from the licensed practitioner. Proposed
Sec. 203.31(a)(2) required that the recipient sign a receipt form
containing the information required under proposed Sec. 203.31(c) when
the drug sample is delivered. Proposed Sec. 203.31(a)(3) required that
the receipt be returned to the manufacturer or distributor.
    23. One comment requested that the proposed rule be revised to
clarify that a single form may be used to satisfy the requirements of a
request and receipt form.
    FDA set forth its policy on the use of one form to satisfy the
request and receipt form requirements for samples delivered by a
representative in the preamble to the proposed rule (58 FR 11842 at
11849). The agency stated:

[[Page 67733]]

    A sample request and receipt need not be on separate forms if
delivery is by a representative. A single form could be devised and
used containing all of the required information, which could be
fully completed and executed with a single signature, if the request
and delivery are simultaneous, or executed in part with a signature
for the request at the time of the request, and executed in part
with a second signature acknowledging receipt at the time of the
delivery.
The agency wishes to emphasize that, whether one form or separate forms
are used, only a licensed practitioner may request a sample and sign
the request form. A sample receipt, however, may be signed either by a
licensed practitioner or that practitioner's designee.
    24. FDA received four comments that objected to any requirement for
a receipt for representative-delivered samples. The comments stated
that receipts for representative-delivered samples were not required by
PDMA and that this requirement goes beyond the scope of the act. Two
comments stated that most requests and deliveries take place on the
same representative visit. One comment recommended that the rule be
revised to cover only those situations where request and delivery of
samples do not occur on the same visit. Another comment said that
Congress required receipts for samples delivered by mail or common
carrier, but not representatives because there are more opportunities
for samples to be lost or diverted when the mail is used. The comment
recommended that the manufacturer could use the information on the
request form to do its own followups with licensed practitioners to see
whether samples had been delivered.
    Although Congress did not expressly require a receipt for
representative-delivered samples in the act, FDA has concluded that
additional requirements, including receipts, are necessary to help
ensure effective enforcement, increased accountability and oversight of
sample distribution, and to provide adequate safeguards against drug
sample diversion. All of these goals are consistent with and further
the legislative intent in enacting PDMA. Although samples delivered by
a representative to a licensed practitioner may be requested and
delivered simultaneously, this is not always the case. For example, the
delivery of samples by a representative to a hospital or health care
entity pharmacy designated by a physician may not occur at the same
time a request for such samples is made. When the request for and
delivery of a sample by a representative do not occur simultaneously,
the potential for sample diversion and corresponding need for a sample
receipt are as great as when samples are delivered by mail or common
carrier. When the request for and delivery of a sample do occur
simultaneously, the sample request and receipt form may be merged into
one form with a single signature (see discussion above).
    25. FDA received four comments related to the medium on which the
required information for representative-delivered sample receipts may
appear. Two comments assumed that proposed Sec. 203.31(a)(2) and (c)
required receipts to be in paper form and objected to that requirement.
Two comments asked for clarification on whether receipts do, in fact,
have to be in paper form or may be electronically created. All four
comments assumed that the proposed regulations required that a paper
receipt be left with the licensed practitioner even when receipts are
electronically created, and objected to this requirement. One comment
stated that neither PDMA guidelines nor the proposed regulations
require licensed practitioners to keep records of drug samples
received, thus a written receipt would serve no purpose.
    It appears that the confusion over whether receipts must be written
on paper came from the preamble discussion of proposed Sec. 203.31 (59
FR 11842 at 11849). FDA stated that ``the agency has tentatively
concluded that the requirement for a written receipt should extend to
all drug sample deliveries, and that requirement is included in
proposed Secs. 203.30 and 203.31.'' Moreover, the word ``written'' does
appear in conjunction with receipts in Sec. 203.30, but not in
Sec. 203.31. As discussed in section II.J of this document, request and
receipt forms, reports, records, and other documents and signatures
required by PDMA and part 203 may be created on paper or on electronic
media, provided that records created on electronic media meet the
requirements of revised Sec. 203.60 and part 11. In addition, although
the final regulations require that a receipt be signed and returned to
the manufacturer when a sample is received, they do not require that a
receipt be left with the practitioner for his or her records or that
practitioners maintain records of samples received.
    b.  Section 203.31(c)(2). Proposed Sec. 203.31(c)(2) stated that if
the drug sample is received by the pharmacy of a hospital or other
health care entity at the request of a licensed practitioner, the
receipt is required to contain, among other things, the name and
address of the hospital or health care entity pharmacy designated to
receive the drug sample.
    26. One comment objected to the requirement that the name and
address of the hospital or health care entity pharmacy designated to
receive the drug sample appear on the receipt. The comment stated that
this information is known by the requesting licensed practitioner.
    The purpose of the receipt requirement is not to provide
information to the licensed practitioner that requests the drug sample,
but to provide manufacturers and authorized distributors with
documentation that samples that were requested were in fact properly
delivered. When a licensed practitioner requests that a drug sample be
delivered to a hospital or health care entity pharmacy, it is necessary
for the name of the hospital or health care entity pharmacy to appear
on the sample receipt so that the person receiving the sample at the
pharmacy can verify, through his or her signature on the sample
receipt, that the sample was delivered as requested.
    c. Section 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d)
required that drug manufacturers and authorized distributors of record
conduct an inventory, using generally accepted inventory practices, of
drug samples in the possession or control of each of their
representatives. The inventory must be conducted at least annually, and
the results of the inventory are required to be recorded in an
inventory record and reconciliation report. The contents of the
inventory record and reconciliation report were set forth in proposed
Sec. 203.31(d)(1) and (d)(2). Proposed Sec. 203.31(d)(1) required the
identification of each drug sample in a representative's stock by the
proprietary or established name and dosage strength, and the number of
sample units. Proposed Sec. 203.31(d)(2) required:
    (i) A report of the physical count of the most recently
completed prior inventory;
    (ii) A record of each drug sample shipment received since the
most recently completed prior inventory, including the sender and
date of the shipment, and the proprietary or established name,
dosage strength, and number of sample units received;
    (iii) A record of drug sample distributions since the most
recently completed inventory showing the name and address of each
recipient of each sample unit shipped, the date of the shipment, and
the proprietary or established name, dosage strength, lot or control
number, and number of sample units shipped; and
    (iv) An explanation for any significant loss.
    As discussed in section II.E of this document, the agency has on
its own initiative revised proposed Sec. 203.31(d) to more clearly
distinguish between the

[[Page 67734]]

inventory and reconciliation functions and to clarify certain required
elements of the reconciliation report.
    27. Two comments requested clarification of the meaning of the
phrase ``generally accepted inventory practices.'' Both comments cited
the statement in the preamble of the proposed rule (59 FR 11842 at
11849) that ``it is FDA's preliminary view that such an inventory must
go beyond a mere physical count, and that meaningful information and
data can only be provided if the inventory is conducted utilizing
generally accepted inventory practices * * *.'' The comments said that
if generally accepted inventory practice refers to more than a physical
count, FDA must clarify what is required.
    As discussed in section II.E of this document, the final rule has
been revised to eliminate the use of the phrase ``generally accepted
inventory practices'' in conjunction with the inventory requirement.
    28. Several comments objected to the requirements in proposed
Sec. 203.31(d)(2)(ii) and (d)(2)(iii) because the required information
duplicates information contained in sample request forms and corporate
distribution records that are already on file. Two comments stated that
the reconciliation report should contain a reconciliation of opening
and closing inventories against sample allocations received and sample
distributions, but not a statement of all individual allocations and
distributions. Another comment questioned whether the inclusion of the
information required under these sections in a single report is
productive or merely an additional clerical burden.
    The first comment correctly points out that the information
required to be contained in the reconciliation report under revised
Sec. 203.31(d)(2)(ii) and (d)(2)(iii) will come from various sources,
including drug sample request and receipt forms, distribution records
required to be created and maintained under the current good
manufacturing practice (CGMP) regulations (see, e.g., 21 CFR 211.196),
and other records maintained by the representative or the firm.
Nevertheless, the agency believes that the assimilation of information
from these multiple records into a single report that concisely
identifies and characterizes each type of transaction conducted with
drug samples will aid industry in detecting discrepancies in inventory
that may be indicative of drug sample diversion activity. In addition,
it will permit FDA and other Federal and State government agencies
responsible for enforcing PDMA to effectively oversee a company's
conduct in performing its reconciliation and in initiating
investigations of potential drug sample record falsifications and
significant losses and thefts of drug samples under Sec. 203.37.
    29. One comment sought clarification on whether the reconciliation
report may consist of several documents that, when taken together,
contain all required information.
    The reconciliation report for an individual sales representative
may consist of several paper documents and/or electronic records.
However, all documents or records are to be collected and maintained as
a single reconciliation ``report.''
    30. Another comment stated that ``PDMA does not require
manufacturers to annually compile a report for each sales
representative that summarizes in one place all aspects of each sample
delivery in minute detail.''
    Although PDMA does not explicitly require the information under
Sec. 203.31(d)(2), it does establish an extensive scheme for monitoring
drug sample distributions by a representative that includes
requirements for drug sample request forms, an annual inventory, and
reporting of significant losses and known thefts of drug samples. As
discussed previously, the agency believes that the requirements
contained in Sec. 203.31(d)(2)(ii) and (d)(2)(iii), including the
requirement for identifying individual transactions conducted with drug
samples in revised Sec. 203.31(d)(2)(iii), are necessary to bring
potential drug sample diversion activities to the attention of
manufacturers and authorized distributors. This objective is consistent
with legislative intent in PDMA.
    31. Two comments recommended that manufacturers should be permitted
to use bar coding that represents the proprietary or established name
and dosage strength on the inventory record and reconciliation report
instead of actual words. One of the comments said that such coding is
``easily translated'' into the required information.
    The agency advises that it does not object to the use of bar coding
that represents required information in the inventory record or
reconciliation report provided that the information in such a form can
be used by the firm to conduct the reconciliation process and to detect
discrepancies in inventory and potential drug diversion. In addition,
the bar coding must be capable of being translated into words and the
record or report must be capable of being produced in its entirety upon
request by FDA or other Federal, State, or local law enforcement
authorities.
    32. Two comments objected to the requirement in proposed
Sec. 203.31(d)(2)(iii) to list the lot or control number in the
reconciliation report. One of these comments stated that this
requirement would not assist in diversion detection because the batches
are so large that significant numbers of representatives in varying
geographical areas will receive the same batch. The comment also stated
that ``existing PDMA records'' make it possible to determine every
physician called on by representatives who could have received the lot
in question. The other comment stated that the requirement would ``have
little or no effect in assuring a meaningful inventory,'' but would
increase difficulty of conducting inventory and preparing the report.
    The requirement in proposed Sec. 203.31(d)(2)(iii) was intended to
ensure that a manufacturer or authorized distributor maintains a record
enabling it to track the distribution of sample units by lot or control
number from a representative to a licensed practitioner. Although the
agency agrees that such information would not necessarily enable
manufacturers or distributors to pinpoint the representative
responsible for distributing a sample unit that has been diverted, it
would promote precision in tracking samples and facilitate the location
of samples in the event of a recall or other public health emergency.
Nevertheless, as discussed below, the agency has determined that
manufacturers and authorized distributors of record should be free to
choose the types of records used to track the distribution of drug
sample lots to licensed practitioners. Therefore, the proposed
requirement for inclusion of lot or control numbers in the
reconciliation report has been eliminated in the final rule.
    d. Section 203.31(d)(3). Proposed Sec. 203.31(d)(3) stated: ``The
inventory and reconciliation reports shall be conducted and prepared by
persons other than the representatives being inventoried or superiors
or managers in their department, division, or branch, or in their
direct line of supervision or command.''
    33. Three comments stated that the proposed requirement represents
a misinterpretation of PDMA and its legislative history regarding
section 303(b)(4)(B)(ii) of the act. The comments stated that this
section allows a manufacturer the option of performing an independent
audit to protect itself from civil liability for the acts of its
representatives, but that FDA has misconstrued the section to mean that

[[Page 67735]]

PDMA requires a yearly, independent audit of every representative.
    The comments apparently misunderstand the terms ``inventory'' and
``audit.'' An inventory is an itemized list or catalog of goods or
property, usually taken annually. An audit is a formal, periodic
examination and checking of accounts or records to verify their
correctness. (Webster's New World Dictionary, 2d College Ed.) The
comments correctly assert that section 303(b)(4)(B)(ii) of the act does
not require an annual audit of all representatives. However, proposed
Sec. 203.31(d)(3) did not establish an audit requirement, but rather
set forth requirements concerning which personnel are to conduct the
inventory and reconciliation and prepare the inventory record and
reconciliation report. The proposed requirement was therefore intended
to implement the requirement in section 503(d)(3)(C) of the act for an
annual inventory of drug samples in the possession of a representative,
rather than section 303(b)(4)(B)(ii) of the act.
    34. Several comments said that the proposed requirement is too
costly, and the ends can be achieved through more cost-effective means.
Several comments stated that since inventory must be completed onsite,
it would be too costly to require personnel other than supervisors or
managers within the geographic area of the representative to perform
it. On the other hand, the comments said, reconciliation can be
performed at a central location, thus it is more susceptible to
completion by independent personnel.
    Two comments distinguished inventory from reconciliation by stating
that the former is relatively simple and can be performed by sales
management, while the latter is more complex and should be done by a
person independent of sales and marketing. In contrast, another comment
recommended allowing representatives to perform the reconciliation, but
not the inventory function.
    One comment recommended allowing anyone but the representative to
perform the inventory or prepare the reconciliation report. Several
comments recommended allowing a sales representative's direct
supervisor or manager to perform the inventory function because that
person is in the best position to assess the performance and
cooperation of a representative and to initiate corrective actions. One
comment recommended allowing anyone other than a representative or his
direct supervisor to perform the inventory. Other comments recommended
allowing a representative's district manager to perform the inventory
function.
    The objective of the proposed requirement was to guard against
errors and possible fraud in the conduct of the physical inventory and
reconciliation, and in the preparation of the inventory record and
reconciliation report, by the representative or other interested
parties. Although the agency continues to believe that this is a
legitimate and important objective, the agency agrees that it can be
achieved through less burdensome means than by requiring the inventory
and reconciliation to be conducted by persons other than the
representatives, their superiors or managers, or others in their direct
line of supervision or command. Accordingly, the agency has revised the
proposed requirement to permit manufacturers and distributors to take
``appropriate internal control measures'' to guard against error and
possible fraud in the conduct of the physical inventory and
reconciliation, and in the preparation of the inventory record and
reconciliation report.
    Under the revised requirement, representatives and their
supervisory personnel may conduct the inventory and reconciliation
functions and prepare inventory records and reconciliation reports.
However, the agency expects that appropriate internal control measures
will be taken that include implementation of a security and audit
system that is controlled by independent personnel, i.e., personnel
other than the representatives, their superiors or managers, or others
in their direct line of supervision or command. Under revised
Sec. 203.34(b), such a security and audit system must follow a plan
that ensures that random audits are conducted on representatives by
personnel independent of the sales force. In addition, the plan must
ensure that for-cause audits are initiated in response to reports,
incidents, or findings identified by the firm as indicating possible
drug sample diversion or falsification of sample distribution records.
If necessary, the agency will issue additional guidance on audit plans
and procedures under revised Sec. 203.34(b).
    e. Section 203.31(d)(4). Proposed Sec. 203.31(d)(4) stated: ``A
manufacturer or authorized distributor of record shall carefully
evaluate any apparent discrepancy or significant loss in its inventory
and reconciliation, and shall fully investigate any such discrepancy or
significant loss that cannot be justified.''
    35. Two comments stated that the word ``apparent'' should be
changed to ``significant''. One comment stated that since manufacturers
are permitted, under Sec. 203.37, to determine what constitutes a
``significant loss,'' they should also be allowed to determine which
discrepancies merit investigation. Another comment recommended revising
``apparent discrepancy'' to read ``potentially significant
discrepancy.''
    The agency is not requiring manufacturers and distributors to
conduct an investigation every time there is an apparent discrepancy in
a representative's inventory, but rather that they evaluate all
apparent discrepancies. It is only when an apparent discrepancy cannot
be justified that an investigation is required. Investigations under
these circumstances are reasonable and consistent with the requirement
in revised Sec. 203.37(a) to investigate when there is a reason to
believe that any person has falsified drug sample records or is
diverting drug samples. Accordingly, the agency declines to amend the
requirement.
3. Issues Related to Sample Distribution by Mail or Common Carrier or
by a Representative or Detailer
    a. Sections 203.30(a)(1) and 203.31(a)(1). Proposed
Secs. 203.30(a)(1) and 203.31(a)(1) required that a licensed
practitioner execute and submit a written request to the manufacturer
or authorized distributor of record to obtain drug samples.
    36. One comment stated that a request form ``creates additional
paperwork and expense without apparent benefit beyond that obtained by
signing a receipt form at the time of delivery of the samples.''
    In sections 503(d)(2)(A)(i) and (d)(3)(A)(i) of the act, Congress
specifically required that a drug sample be distributed only in
response to a written request by a licensed practitioner to ensure
accountability in the sample distribution process. Sections 203.30 and
203.31 reflect those statutory provisions.
    37. Another comment sought clarification on whether the term
``written request'' includes preprinted forms.
    Preprinted drug sample request forms are permissible. However, they
must contain all information required by PDMA and the final
regulations, and must be signed by a licensed practitioner.
    b. Sections 203.30(a)(3) and 203.31(a)(3). Proposed
Sec. 203.30(a)(3) required that the recipient of a drug sample
delivered by mail or common carrier return the receipt to the
manufacturer or distributor from which the drug sample was received.
Proposed

[[Page 67736]]

Sec. 203.31(a)(3) required that the receipt for samples distributed by
means other than mail or common carrier be returned to the manufacturer
or distributor.
    38. Two comments requested clarification on whether, if a licensed
practitioner fails to return a receipt, he or she is barred from
receiving further samples from a manufacturer. Both comments argued
that the intent of Congress in enacting PDMA was to detect patterns of
nonreturns of receipts. The comments recommended that licensed
practitioners should not be barred for isolated failures to return
receipts, but rather, where a pattern of nonreturns exists,
manufacturers should be required to investigate to see if the samples
actually arrived.
    The question of whether a licensed practitioner should be barred
from receiving further drug samples for failing to return drug sample
receipts was not addressed in the proposed rule, and was not addressed
directly by Congress. In the legislative history of PDMA (see H. Rept.
100-76, p. 15), Congress stated: ``Whether the distributions are made
by carrier return receipt or business reply cards, manufacturers or
distributors would not be expected to equate each and every delivery
and receipt; however, an adequate monitoring system would necessarily
need to detect instances where non-return patterns exist.'' Thus, there
is evidence that Congress was not primarily concerned with isolated
failures to return drug sample receipts, but with patterns of
nonreturns. Moreover, the overall structure of PDMA is not intended to
penalize practitioners or prevent them from receiving samples, but
rather to ensure that samples are properly distributed to licensed
practitioners. Therefore, the agency believes that Congress did not
intend for licensed practitioners to be barred from receiving samples
for isolated failures to return sample receipts or for isolated
instances where receipts are not received for reasons beyond the
practitioner's control. However, upon detecting a pattern of nonreturns
by a practitioner, a manufacturer or authorized distributor should not
distribute further samples until the matter is thoroughly investigated.
Such an investigation may, depending on the circumstances, be required
under Sec. 203.37, since a pattern of nonreturns may indicate that a
representative is falsifying drug sample requests, that other drug
diversion activity is occurring, or that a significant loss or theft of
drug samples has occurred.
    c. Sections 203.30(b)(1)(ii) and 203.31(b)(1)(ii). Proposed
Sec. 203.30(b)(1) and (b)(1)(ii) stated: ``A written request for a drug
sample to be delivered by mail or common carrier to a licensed
practitioner is required to contain the following: * * * The
practitioner's State license number or Drug Enforcement Administration
identification number.'' Proposed Sec. 203.31(b)(1) and (b)(1)(ii) set
out the same requirement for requests for drug samples delivered by
means other than mail or common carrier.
    39. FDA received 15 comments on these requirements. Many of the
comments supported the overall goal of these sections, i.e., to ensure
that persons requesting drug samples are licensed practitioners.
However, several comments stated that State license numbers are not
always assigned to practitioners who are otherwise authorized by State
law to prescribe drugs. The comments requested clarification as to what
verification is appropriate for practitioners subject to different
authorization mechanisms than physicians.
    As was discussed in response to the comments on the definition of
licensed practitioner, the agency has determined that practitioners
authorized by State law to prescribe drugs may request and receive drug
samples. Practitioners who are authorized by a State to prescribe drugs
and have no State license number may use any number assigned to them by
the State that represents that they are authorized to prescribe drugs.
The agency is not aware of any State that does not assign some type of
number to practitioners that it authorizes to prescribe drugs. However,
if such a case arises, the agency will consider how to provide
verification at that time.
    40. Several comments cited potential problems with the use of DEA
numbers for verification. Several comments said that not all licensed
practitioners, but only those who prescribe controlled substances, are
issued Drug Enforcement Administration (DEA) numbers. Other comments
stated that, although DEA numbers can be accessed through a central
data base, this practice is discouraged by DEA unless a controlled
substance is involved. One comment stated that DEA numbers are often
improperly accessed and illegally used to divert drugs and recommended
that only State license numbers be used.
    The agency has consulted with the DEA on the appropriate use of DEA
numbers for identification purposes. DEA policy is that registration
numbers assigned by DEA to licensed practitioners are to be used only
to obtain scheduled drug products, not for general identification
purposes. Accordingly, the agency has modified the requirement in the
final rule to specify that State license or authorization numbers are
to be used on sample request forms generally, and DEA numbers are to be
used only when a sample of a scheduled drug product is requested.
    41. Several comments asked for clarification on whether a
manufacturer or authorized distributor would be required under this
section to verify the State licensing or DEA number on the request
form. One comment stated that the provision of a State license or DEA
number, without verification, would not confirm that a practitioner is
in fact licensed. Other comments opposed a requirement that the
manufacturer or authorized distributor verify the State licensing or
DEA number. One comment recommended that the presence of the number on
a sample request form be deemed acceptable on its face. Two comments
recommended that instead of requiring the manufacturer to verify
whether the requesting person is a licensed practitioner, the person
requesting samples could be required to attest to being a licensed
practitioner on the sample request form, i.e., with the inclusion of a
preprinted line next to where his or her signature would go. Three
comments recommended that an internal number established by the
manufacturer after checking a requesting practitioner's credentials be
considered acceptable.
    FDA has determined that verification by a manufacturer or
authorized distributor of the State license or authorization number, or
the DEA number as appropriate, is necessary and has codified the
requirement in Secs. 203.30(a)(2) and 203.31(a)(2) of the final rule.
The agency does not believe that allowing a manufacturer to deem
acceptable the number on a request form without verifying its
authenticity would offer any assurance that a person requesting samples
is in fact licensed or authorized to prescribe drugs. Similarly, an
attesting signature on a request form offers little more assurance that
a person is in fact licensed or authorized than an unverified license
or authorization number. The agency does believe there is merit in the
suggestion that, once a practitioner's number is verified by a
manufacturer or distributor with a State licensing board or the DEA, an
internal number or other tracking system may be devised such that the
number does not have to be reverified every time a sample is requested
by the same practitioner. However, any list of verified State license
or authorization numbers maintained by an authorized

[[Page 67737]]

distributor or manufacturer must be updated at least annually to
reflect changes in license or DEA status.
    42. Several comments stated that it would be difficult for
manufacturers to verify State license numbers because there is no
national data base that contains all State licensing numbers, State
licensing boards do not possess mechanisms to provide wide-scale
verification services, and methods of verification vary from State to
State.
    As discussed in section IV.B of this document, the agency believes
that cost-efficient systems for verifying State licensing numbers will
be made available to manufacturers and authorized distributors of
record in the near future. Until that time, State licensing boards do
possess sufficient mechanisms to provide verification that individuals
are licensed by them. The agency recognizes that there may be some
difficulty associated with verifying State license or authorization
numbers. However, State licensing numbers are the only reliable way of
proving that a practitioner is actually licensed by a State to
prescribe drugs.
    43. One comment recommended that FDA require States to adopt
uniform methods of assigning licensing numbers.
    The power to set prescribing requirements and methods is one that
has traditionally been vested in the States. The agency does not wish
to interfere with this power by requiring that States adopt uniform
methods of assigning State licensing numbers.
    44. Several comments recommended that FDA add the American Medical
Association's Medical Education (ME) number to the list of permissible
verification numbers. The comments stated that the advantages of this
number are that it is centrally accessible, it is not subject to change
as State license numbers may be, and it includes at least some
nonphysician practitioners. Two comments also recommended that use of
the Association of Physician's Assistants file number be permissible.
    The agency has concluded that where a practitioner has a State
license number, that number must be used for verification purposes. As
discussed above, nonphysician practitioners who are licensed, or who
are not licensed but are authorized by State law to prescribe drugs,
may use any number assigned to them by the State that represents that
they are authorized to prescribe drugs. The agency does not believe
that other types of identification, including numbers assigned to
health professionals in connection with membership in professional
associations, are reliable means of proving that a practitioner is
licensed or authorized to prescribe drugs.
    d. Sections 203.30(b)(1)(iii) and 203.31(b)(1)(iii). Proposed
Secs. 203.30(b)(1)(iii) and 203.31(b)(1)(iii) required that the
proprietary or established name and strength of the drug sample
requested appear on the sample request form.
    45. Two comments requested that the proposed sections be revised to
allow bar coding on the request form that represents the name and
strength of the drug sample. Both comments indicated that the bar
coding would be translated into words on the form so that the doctor
would know what he or she was requesting.
    The agency has no objections to allowing bar coding representing
information on preprinted sample request forms where that information
is also translated into words on the form. However, the bar coding must
not cover up or otherwise detract from the ability of practitioners to
read the words on the form.
    e. Sections 203.30(b)(1)(v) and 203.31(b)(1)(v). Proposed
Secs. 203.30(b)(1) and 203.31(b)(1) set forth the requirements for
contents of written request forms for delivery of samples by mail or
common carrier and by representative, respectively. Proposed
Secs. 203.30(b)(1)(v) and 203.31(b)(1)(v), which are identical,
required that the request form contain ``the name of the manufacturer
and the authorized distributor of record, if the drug sample is
requested from an authorized distributor of record.''
    46. FDA received four comments on these sections. One comment
objected to the requirement in Sec. 203.31(b)(1)(v) that the names both
of the manufacturer and of the distributor be included on the request
form. The comment stated that this requirement is redundant since the
manufacturer and authorized distributor of record are responsible for
knowing each other, and if a diverted sample is found, the manufacturer
will be able to trace the sample to the authorized distributor. Three
comments objected to the requirement in both Secs. 203.30(b)(1)(v) and
203.31(b)(1)(v). These comments stated that requiring the names both of
the manufacturer and of the authorized distributor of record causes
additional recordkeeping burdens, serves no useful purpose, and is
contrary to the explicit language of section 503(d)(3)(A) of the act.
    A distributor may distribute drug samples under section 503 of the
act only if it is an authorized distributor of record for the
manufacturer of the drug. Thus, the ability of a distributor to
distribute samples is directly related to its relationship with the
manufacturer. The agency believes that it is reasonable to require that
a sample request form for an authorized distributor of record include
the name of the manufacturer that authorizes the distributor to
distribute samples. The requirement will help ensure that the parties
involved in and responsible for sample distribution can be readily
identified by FDA and other government agencies. This purpose is
consistent with legislative intent to ensure that distributors of drug
samples are authorized distributors of record, and the agency therefore
adopts the requirement in the final rule.
    f. Sections 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2).
Proposed Secs. 203.30(c) and 203.31(c) set forth the requirement that
drug sample receipts contain, among other things, the lot or control
number of the drug sample delivered.
    47. FDA received several comments that objected to the sample lot
or control number requirements and recommended that they be eliminated.
Two of these comments objected to the requirement for representative
delivered samples only, while the remaining comments objected to the
requirement for both samples delivered by mail or common carrier and by
representative. Several comments argued that, under existing CGMP
requirements, the requirement is not necessary because distribution of
sample lots is tracked by the manufacturer to the representative, who
keeps a record of the practitioners visited and the samples that are
distributed. Two comments stated that recording lot numbers on sample
receipts is an inefficient way of tracking sample lots to the
practitioner level, and that the method of tracking should be left to
manufacturers as long as they can provide accurate and timely lot
specific records. Other comments argued that lots should only have to
be tracked down to the representative level.
    The agency believes that the tracking of sample distributions by
lot to the level of the licensed practitioner is essential both to
maintaining accountability and oversight over sample distribution and
to facilitating recalls and, therefore, declines to eliminate the
proposed requirements on the ground that samples need only be tracked
to the representative level. The agency agrees, however, that recording
lot numbers on drug sample receipts and other drug sample distribution
records required under part 203 may not be the most efficient method of
tracking sample lots and that manufacturers and authorized distributors
should be free to use other types of records to accomplish

[[Page 67738]]

this purpose. Accordingly, the agency has eliminated the requirement to
include lot or control numbers on drug sample receipts in revised
Secs. 203.30(c)(1) and (c)(2) and 203.31(c)(1) and (c)(2) and on
reconciliation reports in revised Sec. 203.31(d)(2)(iii). Moreover, the
requirement under proposed Sec. 203.38(b) to include lot or control
numbers on all drug sample distribution records has been substantially
revised. Under revised Sec. 203.38(b), manufacturers and authorized
distributors of record are required to maintain drug sample
distribution records containing lot or control numbers that are
sufficient to permit tracking of drug sample units to the point of the
licensed practitioner. Sample distribution records containing lot or
control numbers must be maintained by manufacturers or authorized
distributors whether the samples are distributed by the mail or through
representatives.
4. Drug Sample Forms
    Proposed Sec. 203.33 stated:
    A sample request or receipt form may be delivered by mail,
common carrier, or private courier or may be transmitted
photographically or electronically (i.e., by telephoto, wirephoto,
radiophoto, facsimile transmission (FAX), xerography, or electronic
data transfer) or by any other system, provided that the method for
transmission meets the security requirements set forth in
Sec. 203.60(d).
    Due to the publication of part 11, which supersedes portions of
proposed Sec. 203.60, the security requirements that apply to paper
documents transmitted photographically, electronically, or by any other
system have been modified and appear under Sec. 203.60(c) in the final
rule. Section 203.33 has been revised to refer to this section.
5. Policies and Procedures
    Proposed Sec. 203.34 stated:
    Each manufacturer or authorized distributor of record that
distributes drug samples shall establish, maintain, and adhere to
written policies and procedures describing its administrative
systems for the following:
    (a) Distributing drug samples by mail or common carrier,
including methodology for reconciliation of requests and receipts;
    (b) Distributing drug samples by means other than mail or common
carrier including the methodology for their independent sample
distribution security and audit system;
    (c) Conducting its inventory of drug samples under
Sec. 203.31(d), including an inventory schedule;
    (d) Auditing and detecting falsified or incomplete drug sample
records;
    (e) Identifying any significant loss of drug samples and
notifying FDA of the loss;
    (f) Monitoring any loss or theft of drug samples; and
    (g) Storing drug samples by representatives.
    As discussed in section II.G of this document, the requirements in
proposed Sec. 203.34 have been renumbered and revised in the final
rule. Comments on the proposal are addressed in light of the revisions.
    48. One comment stated that PDMA only requires manufacturers to
develop adequate audit and security systems to detect and investigate
losses and thefts, not to create and adhere to extensive written
policies documenting all aspects of the drug sampling process. The
comment stated that a manufacturer should not be subject to liability
for failing to have a written corporate-wide policy on the subject
matter covered by the proposed rule.
    The agency believes that the creation of internal policies by a
manufacturer or authorized distributor of record to achieve the
statutory objectives is important to the attainment of those
objectives. PDMA sets forth requirements that manufacturers and
authorized distributors of record report significant losses and thefts
of samples, that manufacturers' and authorized distributors'
representatives be inventoried at least annually, and that drug samples
be subject to proper storage conditions. In addition, PDMA's
legislative history indicates that Congress intended that manufacturers
and authorized distributors have audit and security systems in place to
detect losses and thefts, as well as falsified or incomplete drug
sample records. (H. Rept. 100-76, p. 20, S. Rept. 100-202, p. 9.)
Accordingly, the agency believes that it is authorized to implement
specific requirements regarding procedures and systems to accomplish
these legislative objectives. However, the agency believes that
industry should have the flexibility to develop its own procedures and
systems, as long as such procedures and systems are documented and
followed.
    49. One comment stated that, under PDMA, a manufacturer is already
liable for failing to identify and report losses, thefts, or
falsification of records, whether it has written policies or not. Thus,
according to the comment, written procedures are not necessary to
ensure that significant losses of samples are detected.
    Section 301(t) of the act subjects manufacturers and authorized
distributors to civil and criminal penalties for failure to report
significant losses and thefts as required under section 503(d)(3)(D) of
the act. While the agency recognizes that this provision provides
incentive for a manufacturer or authorized distributor to identify and
investigate potential cases of diversion, it does not ensure that
effective written procedures and administrative systems are in place to
do so.
    50. Another comment requested that the requirement in proposed
Sec. 203.34(c) for an inventory schedule be flexible so that a
procedure committing to conduct a field force inventory at least yearly
would be sufficient.
    Administrative procedures adopted by manufacturers and authorized
distributors of record must be adequate to ensure compliance with PDMA
and agency requirements. With respect to the requirement in revised
Sec. 203.34(b)(2) for written policies and procedures describing
administrative systems for conducting the annual physical inventory,
the administrative procedures must ensure that all representatives are
inventoried at least once a year in accordance with the requirements of
Sec. 203.31(d) and section 503(d)(3)(C) of the act.
6. Use of Third Parties
    a. Section 203.36(a). Proposed Sec. 203.36(a) stated:
    Any manufacturer or authorized distributor of record that uses a
fulfillment house, shipping or mailing service, or other third
party, or engages in a comarketing agreement with another
manufacturer or distributor to distribute drug samples or to meet
any of the requirements of PDMA, PDA, or this part, remains
responsible for creating and maintaining all requests, receipts,
forms, reports, and records required under PDMA, PDA, and this part.
    51. One comment supported the section as written. Several comments
requested clarification on whether the manufacturer or authorized
distributor must itself create and maintain forms and records or ensure
proper compliance by the third party. Several comments objected to the
former interpretation on the ground that it would require so much
involvement by the manufacturer or authorized distributor in the day-
to-day operations of the third party that it would effectively preclude
companies from using third parties.
    The agency clarifies that a manufacturer or authorized distributor
of record that uses a third party to distribute drug samples or meet
any requirements of PDMA or the final rule may have the third party
create and maintain required requests, receipts, forms, reports, and
records. For example, a shipping company that delivers samples would be
permitted to use its own delivery verification receipts and to maintain
those receipts for the manufacturer or authorized distributor. However,
the manufacturer or authorized distributor is responsible

[[Page 67739]]

for ensuring that the third party complies with all requirements under
PDMA and the final rule. In the previous example, if all of the
information required in Sec. 203.30 is not contained on the shipping
company's receipt, the manufacturer or authorized distributor is
responsible for compliance, and thus liable for noncompliance, with
Sec. 203.30.
    Additionally, the agency is aware that some drug manufacturers
contract with an ``outside'' promotional sales force rather than
maintaining an ``in-house'' one. These representatives, known in the
industry as ``contract representatives,'' qualify as third parties
under this section. Since contract representatives may be paid
according to the number of samples distributed, firms using their
services should be particularly vigilant concerning the possibilities
for sample diversion and sample request and receipt form falsification.
    52. One comment requested clarification as to whether, if a
manufacturer enters into a comarketing agreement with another
manufacturer for the distribution of samples by its representatives,
the comarketer would thereby become an authorized distributor of record
and would thus be responsible for creating and maintaining its own
reports, forms, and records. Another comment contended that comarketers
could qualify as manufacturers or authorized distributors of record and
recommended that the final rule be revised to make comarketers who are
themselves manufacturers or authorized distributors responsible as such
for compliance with PDMA.
    As the agency explained under the comments on the definition of
``ongoing relationship,'' a comarketer, sample fulfillment house, or
other entity that performs sample distribution functions other than
delivery or functions that are incidental to delivery is engaged in
``distribution'' of drug samples and must, under section 503(d) of the
act, be an authorized distributor of record. Authorized distributors of
record are responsible for complying with all requirements for sample
distribution under PDMA and the final rule, including creating and
maintaining all required requests, receipts, forms, reports, and
records. Thus, if a manufacturer or authorized distributor contracts
with a third party which itself becomes an authorized distributor of
record, the manufacturer or authorized distributor and the third party
are both responsible for compliance with PDMA requirements.
    b. Section 203.36(b). Proposed Sec. 203.36(b) stated that a
manufacturer or authorized distributor of record that contracts with a
third party to maintain some or all of its records shall produce
required documents within 48 hours of a request by an authorized
representative.
    53. Several comments stated that 48 hours is not enough time to
produce required documents. Three comments recommended that the section
be revised to allow 5 working days for production of records. One
comment stated that a manufacturer should be excused from penalty when
requested information in the storage of a third party is not produced
within 48 hours by reason of ``unanticipated events beyond the
reasonable control of either the drug manufacturer or the contractor
(i.e., a force majeure defense).'' The comment stated that, at a
minimum, the section should be amended to provide 48 business hours to
comply.
    In response to the comments, the agency has revised proposed
Sec. 203.36(b) to require the production of records maintained by a
third party within 2 business days of a request, rather than 48 hours.
The agency believes that this period should be sufficient given the
fact that most records are maintained electronically and can be quickly
and easily retrieved and transmitted to the location where they are
requested.
7. Investigation and Notification Requirements
    a. Section 203.37(a)(1) and (a)(2). Proposed Sec. 203.37(a)(1)
stated:
    A manufacturer or authorized distributor of record that has
reason to believe that any person has falsified drug sample
requests, receipts, or records shall conduct a full and complete
investigation, and shall notify FDA, by telephone or in writing,
within 5 working days of becoming aware of a falsification and
within 5 working days of the completion of an investigation.
    Proposed Sec. 203.37(a)(2) stated: ``A manufacturer or authorized
distributor of record shall provide FDA with a complete written report,
including the reason for and the results of the investigation, not
later than 30 days after the date of the initial notification.''
    The agency, on its own initiative, has reformatted proposed
Sec. 203.37(a)(1) and (a)(2) into Sec. 203.37(a)(1), with three
subsections. The agency believes that the new format is clearer and
easier to understand.
    54. FDA received 10 comments on these sections addressing the
following issues: (1) The circumstances under which a manufacturer or
authorized distributor should be required to investigate, (2) the time
period to complete investigation, (3) when and under what circumstances
a manufacturer should be required to give notice to FDA, and (4) the
form of the notice and reporting requirements.
    Two comments addressed the level of suspicion of falsification that
is necessary to trigger the investigation requirement. One comment said
that the ``reason to believe'' language that appears in
Sec. 203.37(a)(1) creates a standard that is ``vague and difficult to
interpret.'' Another comment stated that ``reason to believe needs to
be defined so that a manufacturer will not be second guessed.'' Another
comment stated that the proposed rule does not define what constitutes
``falsification,'' and that variances in a representative's reported
numbers do not usually give rise to a ``reason to believe'' that a
falsification has occurred, requiring investigation and notice, but
rather that a representative has poor work habits. The comment stated
that requiring investigation of every variance would be
``unrealistic.''
    Instances of potential falsifications are most likely to come to
the attention of manufacturers or authorized distributors through
discrepancies that are uncovered during the required annual inventory
and reconciliation. However, it is possible that other events or
occurrences, some foreseeable and some not, may bring potential
falsifications to the attention of a manufacturer or distributor. The
agency has determined that the reason to believe standard, while not
capable of precise definition, is flexible enough to cover the
multiplicity of situations in which potential falsification is brought
to light. Moreover, the standard is one that can be applied by
manufacturers and authorized distributors using common sense and good
judgment. While the agency does not expect manufacturers and authorized
distributors to investigate every slight discrepancy, the agency would
require investigation under this standard where a pattern of
discrepancies exists or where other reliable information indicates that
records have been falsified.
    55. Another comment said that the circumstance that triggers the
investigation requirement should be diversion, not falsification. That
comment also stated that the investigation requirement should apply
only to a manufacturer's or authorized distributor's employees'
misconduct, not to any person.
    The drug sample recordkeeping requirements were instituted to help
ensure that drug diversion schemes could be detected. The agency
believes that patterns of falsification of drug sample requests,
receipts, or records,

[[Page 67740]]

while not conclusive, are highly probative that drug sample diversion
is taking place. Thus, the agency declines to follow the recommendation
that knowledge of diversion precede investigation.
    The agency recognizes, however, that circumstances other than
record falsification may be indicative that drug sample diversion is
occurring. Accordingly, the agency has revised proposed Sec. 203.37(a)
to require notification, investigation, and reporting where a
manufacturer or authorized distributor of record has reason to believe
that any person is diverting prescription drug samples.
    Finally, the agency believes that the manufacturer or authorized
distributor of record is in the best position to detect potential
diversion not only by its own employees, but by other persons, such as
contract representatives. Accordingly, the agency has determined that
manufacturers and authorized distributors must investigate when they
have reason to believe that any person has falsified drug sample
records or has diverted drug samples.
    56. Two comments stated that PDMA statutory requirements did not
make falsification of drug sample records reportable to FDA.
    Although PDMA did not expressly make falsification of drug sample
records reportable to FDA, the agency has determined that such notice
is necessary and furthers the legislative intent in PDMA. Persons who
falsify drug sample requests, receipts, or records may be criminally
prosecuted under sections 301 and 303 of the act, and under Title 18 of
the United States Code. Because FDA is responsible for enforcing PDMA,
it is necessary that the agency have all pertinent information
regarding such potentially criminal conduct. Moreover, Congress did
explicitly make significant losses and known thefts reportable to FDA,
presumably because such losses and thefts indicate possible sample
diversion activity. (See S. Rept. 100-303, p. 6, H. Rept. 100-76, p.
16.) As discussed previously, the agency believes that falsifications
of drug sample records are highly probative that drug diversion is
taking place. Thus, the agency has determined that it is consistent
with congressional intent that the agency be made aware of such
falsifications, as well as other activity that is indicative of drug
sample diversion, to enable FDA to monitor compliance with PDMA.
    57. One comment noted that statements made in the preamble to the
proposal (59 FR 11842 at 11851) conflicted with proposed
Sec. 203.37(a)(1). The comment stated that the proposal's preamble
indicated that notice would be required to be provided to FDA when an
investigation is initiated. However, proposed Sec. 203.37(a)(1) does
not require notice until ``within 5 working days of becoming aware of a
falsification.'' According to the comment, the notice discussed in the
preamble may precede the notice required under the proposed regulation.
    The agency acknowledges that the notice discussed in the preamble
of the proposal (59 FR 11842 at 11851) is different than the notice
that would be required under the proposed regulation. The agency has
revised proposed Sec. 203.37(a)(1) and (a)(2) to require that a
manufacturer or authorized distributor of record that has reason to
believe that any person has falsified drug sample requests, receipts,
or records, or is diverting drug samples must notify FDA within 5
working days, immediately initiate an investigation, and submit a
written report to FDA within 30 days after the date of the initial
notification. Thus, the requirement in proposed Sec. 203.37(a)(1) that
a manufacturer or distributor notify FDA within 5 working days of
becoming aware of a falsification and within 5 working days of the
completion of an investigation has been eliminated. The agency believes
that the provision of a single notice to FDA near the time when an
investigation is initiated is sufficient.
    58. One comment said that firms should be required to provide
notice to FDA only in ``situations where substantial evidence of
apparent attempts to conceal diversion of samples exists.'' Another
comment stated that notice should not be required until a ``strong
probability'' of falsification is indicated by an investigation.
Several comments stated that, except for a final written report
submitted at the completion of an investigation revealing that
falsification has in fact occurred, no notice should be required. One
of these comments stated that it would be ``improper and unfair'' to
implicate employees in falsification before all of the facts are known
and an informed judgment can be made with respect to responsibility.
One comment recommended that a written report should be made available,
but not automatically submitted, to FDA.
    The agency believes that the manufacturer or authorized
distributor, through its own investigation, is in the best position to
determine whether falsification has occurred. However, for enforcement
purposes, it is necessary that FDA be notified when there is reason to
believe that there has been a falsification to ensure that an
investigation is actually undertaken. Moreover, the provision of notice
to FDA at the initiation of an investigation will establish a point
from which to judge whether the investigation is completed in a timely
manner. Thus, the agency disagrees with the recommendation that notice
should not be provided to FDA until an investigation is completed and a
strong probability of records falsification exists or until records
falsification is confirmed. In addition, submission of a final written
report to FDA stating the reasons for and the results of an
investigation is necessary, even where falsification has not been
found, to permit FDA to determine whether the circumstances were
adequately investigated and explained.
    59. One comment stated that reports of some complex cases could
require more than 30 days to complete and requested that the proposed
rule be revised to allow for 30 days, except in ``unusual
circumstances.'' Another comment recommended allowing completion of the
investigation within a ``reasonable time,'' while another recommended
that there should be no time restriction for the submission of a final
report.
    The final rule as revised gives manufacturers 30 days to complete
an investigation of possible falsification and to submit a written
report. The agency believes that this amount of time is more than
adequate in all but the most complex cases. In such cases, a
preliminary report may be submitted describing the investigative
measures taken, a summary of the findings of the investigation up to
that time, the nature of the ongoing investigation, and the reasons the
investigation was not completed within the required time.
    b. Section 203.37(b)(1) and (b)(2). Proposed Sec. 203.37(b)(1)
stated:
    A manufacturer or authorized distributor of record that
distributes drug samples or a charitable institution that receives
donated drug samples from a licensed practitioner shall notify FDA,
by telephone or in writing, within 5 working days of becoming aware
of any significant loss or known theft of drug samples and within 5
working days of the completion of an investigation into a report of
a significant loss or known theft.
    Proposed Sec. 203.37(b)(2) stated: ``A manufacturer or authorized
distributor of record shall provide FDA with a complete written report
not later than 30 days after the date of the initial notification.''
    On its own initiative, the agency has reformatted and revised these
sections into a single section, Sec. 203.37(b)(1), with three
subsections. The revised section eliminates the requirement in proposed
Sec. 203.37(b)(1) for notice to be given to

[[Page 67741]]

the agency within 5 days of the completion of an investigation of
significant loss or known theft, but otherwise retains and clarifies
the requirements in proposed Sec. 203.37(b)(1) and (b)(2).
    60. Two comments recommended revision of proposed Sec. 203.37(b)(1)
to extend the time a manufacturer or authorized distributor has to
notify FDA after becoming aware of a significant loss or theft, with no
notification required if subsequent investigation reveals no loss or
theft. One of the comments said that it would not be possible to
differentiate insignificant accounting mistakes and actual losses
within 5 days of learning of an inventory discrepancy and that the
requirement would cause too many false alarms.
    Unlike falsifications of drug sample records, the agency requires
notice of significant losses and known thefts only when a manufacturer
or authorized distributor ``becomes aware'' of such losses or thefts.
Thus, the level of certainty under which notice and investigation are
required is higher for losses and thefts than it is for falsifications.
Consequently, a manufacturer or authorized distributor should have
already differentiated insignificant accounting mistakes and actual
losses before notice is given to FDA. Thus, the agency believes that 5
working days from the time that a manufacturer or authorized
distributor becomes aware of losses or thefts is sufficient to provide
notice to FDA of losses or thefts.
    61. Two comments recommended allowing 45 days after becoming aware
of significant losses during shipment before notice is required,
because such apparent losses of drug samples often show up during that
time period.
    The agency declines to follow the recommendation of the comments.
Potential significant losses that occur during shipping must be
investigated and reported like other significant losses. When samples
thought to be lost or stolen during shipping are later found, a
followup report should be made to the agency describing the
circumstances of the recovery and the quantity of samples that were
recovered.
    62. In the preamble to the proposed rule (59 FR 11842 at 11851),
the agency stated: ``The reporting of any significant loss of drug
samples is critical to the success of diversion control. * * * FDA
intends this requirement to mean that the agency is to be advised of
actual, physical losses, but not insignificant accounting mistakes.''
FDA stated that it was aware of the difficulty of establishing a
threshold for significant loss and solicited comment on how to
distinguish between significant losses and minor accounting or
inventory errors. The agency did not propose to establish a tolerance
level for sample losses below which no report is required, and stated
that each manufacturer or distributor is required to establish its own
threshold for determining when inventory not accounted for is
significant.
    One comment stated that losses may occur in several ways, including
losses of shipments in transit, loss by representatives, and
unexplained inventory discrepancies. The comment stated that, for
shipping losses, it may be appropriate for companies to set a dollar
amount above which a single loss is considered significant. This amount
would vary by company and would be dependent on the size of the
company, number of representatives, and size and value of its total
inventory. The comment stated that shipping losses should also be
viewed cumulatively over a ``fixed, rolling period of time'' to
determine if there is a pattern of losses that might indicate
diversion. Regarding unexplained inventory shortages, the comment
stated that each company should be required to establish its own
threshold for determining when inventory not accounted for is
significant. Inventory discrepancies that can be shown to be caused by
math or accounting errors or mistakes that can be reconciled should not
be reported. The comment stated that there are three significant loss
scenarios that may indicate possible diversion: (1) A single loss that
exceeds a company's predefined threshold; (2) the number of loss events
over a fixed, rolling period exceeds the company's threshold; or (3)
the volume of losses over a fixed, rolling period exceeds the company's
threshold.
    One comment stated that loss of a certain quantity of one drug
sample with a high potential for diversion may be significant, while
the loss of the same quantity of another sample with a low potential
for diversion may not be significant. Therefore, the comment asserted,
no universally applicable threshold can be established and a case-by-
case analysis must be employed.
    One comment requested that FDA clarify that not all physical losses
are significant.
    The agency agrees with the first comment that different methods for
determining whether a loss is significant may be used depending on the
type of loss involved. For single loss events (i.e., ``physical''
losses) including losses by representatives (except for losses reported
as thefts, which must all be reported and investigated) and losses of
drug samples in transit, establishing a predefined threshold based on a
set dollar amount or other criteria, such as a fixed number of sample
units, may be appropriate. The size of the manufacturer or authorized
distributor of record, the number of representatives, and size and
value of a firm's total inventory, as well as a firm's past experience
with sample losses, are relevant factors in determining the level of
the threshold. However, the agency also agrees with the second comment
that firms should remain responsive to the individual circumstances
surrounding a single loss event, such as the loss of a drug with a
particularly high potential for diversion, to determine whether a loss
is significant even though the size of the loss does not meet the
firm's predefined threshold.
    Regarding potentially significant losses that are revealed through
unexplained inventory shortages, the agency stated in the preamble to
the proposed rule that it does not seek to receive reports concerning
minor mathematical errors that are caught and corrected in the normal
course of business. The agency stated that firms are required to
establish their own threshold for distinguishing between insignificant
accounting mistakes and significant losses in inventory shortages based
on the firm's past experience in sample distribution and inventory and
the level of accuracy of its internal audit and security system. The
agency also stated that some manufacturers or distributors might be
able to set a ``historically validated statistical baseline'' for
minimal amounts of inventory shrinkage caused by routine accounting
errors, mistakes, or losses, and a statistical baseline for the
frequency of occurrences (59 FR 11842 at 11851). The views expressed by
the second comment regarding discerning significant losses from
inventory shortages thus appear to be consistent with those previously
set forth by the agency.
    63. One comment supported permitting manufacturers and distributors
to establish their own thresholds for determining when inventory not
accounted for is significant, but said that it was concerned about
being second-guessed by the agency in determining what constitutes a
significant loss. The comment recommended that FDA clarify within
proposed Sec. 203.37 that it would not challenge a manufacturer for
following its own definition of significant loss.
    The agency declines to revise the proposal to state that it will
not

[[Page 67742]]

challenge a manufacturer for following its own definition of
significant loss. However, the agency advises that a firm can best
ensure that no enforcement action will be taken against it for
violation of Sec. 203.37(b) where it establishes a system for reporting
and investigating significant losses that is consistent with the
guidance provided in this notice and in the proposed rule.
Additionally, where a manufacturer or distributor is unsure about
whether a loss is significant, it should report and investigate the
loss as if it were significant.
    64. One comment stated that FDA should not give manufacturers or
distributors any discretion to define what constitutes significant
loss, but rather should define it for them.
    As explained previously and in the proposal (59 FR 11842 at 11851),
the threshold level of what constitutes a significant loss will
necessarily vary depending on such factors as the size of a company and
the value of its total inventory, the accuracy of a manufacturer's or
distributor's system for tracking sample distribution, and the
circumstances surrounding the loss. Thus, the agency declines to codify
a definition of significant loss.
    65. One comment expressed concern that virtually all losses would
have to be reported under the significant loss standard as described by
the agency in the proposal and recommended that significant loss be
defined as a percentage of total sales or supplies.
    The agency believes that it has provided sufficient guidance in the
proposed rule and in this notice about how to distinguish between
routine losses and significant losses that need to be reported and
investigated. Thus, the agency disagrees that all or virtually all
losses will have to be reported and investigated and declines to set a
threshold based on percentage of total sales or supplies above which a
loss will be considered significant.
    c. Section 203.37(d). Proposed Sec. 203.37(d) stated: ``* * * A
manufacturer or authorized distributor of record that distributes drug
samples shall inform FDA in writing within 30 days of selecting the
individual responsible for responding to a request for information
about drug samples of that individual's name, business address, and
telephone number.''
    66. One comment sought clarification on whether the information
required by this section is ``for a regulatory agency and PDMA
information or information for a potential customer-doctor or
patient.''
    FDA clarifies that the information required by this section is to
facilitate requests for drug sample information by FDA and Federal,
State, and local regulatory and law enforcement officials.
8. Sample Lot or Control Numbers; Labeling of Sample Units
    a. Section 203.38(a). Proposed Sec. 203.38(a) stated: ``The
manufacturer or authorized distributor of record of a drug sample shall
include in the labeling of the drug sample and the label of the sample
unit an identifying lot or control number that will permit the tracking
of the distribution of each drug sample unit.''
    67. Two comments stated that the statement ``identifying lot or
control number that will permit the tracking of the distribution of
each drug sample unit'' could be interpreted to mean that each drug
sample unit would require its own identifying number. The comments
requested that the agency clarify that tracking is required only of
lots, not of sample units.
    FDA clarifies that the section is intended to require only the
tracking of sample units by the lot from which they came, and does not
require that each sample unit receive its own identifying number.
    68. Several comments requested clarification on whether the lot or
control number is required to appear only on the external packaging of
sample units or on all labeling as defined in 21 CFR part 201,
including inserts and circulars. Several comments objected to the
latter interpretation on the grounds that such a requirement would be
costly and would not aid in the prevention of drug diversion. One
comment, for example, stated that package inserts would probably be
discarded by individuals engaged in diversion. Several comments stated
that inserts are currently not lot-specific and that customizing
inserts to lots would be extremely expensive. One comment stated that
requiring lot numbers on package inserts would not benefit recall
procedures.
    The section as proposed would require lot or control numbers to
appear both on sample unit labels and on other drug sample labeling.
Inserts and circulars are labeling as defined in section 201(m) of the
act. However, the agency agrees with the comments that requiring lot or
control numbers to appear on package inserts, circulars, or similar
labeling is not necessary. The section has been revised to require that
the lot or control number appear only on the label of the sample unit
itself, and on the outside container or packaging of the sample unit,
if any, in accordance with section 201(k) of the act.
    b. Section 203.38(c). Proposed Sec. 203.38(c) stated, in relevant
part, that ``each sample unit shall bear a label that clearly denotes
its status as a drug sample, e.g., `sample,' `not for sale,'
`professional courtesy package.'''
    In the preamble to the proposed rule (59 FR 11842 at 11855), the
agency identified ``starter packs'' as prescription drug products
distributed without charge by manufacturers or distributors to
pharmacists with the intent that pharmacists place the drugs in stock
and sell them at retail. The agency stated that starter packs are
intended for sale and therefore do not meet the statutory definition of
a drug sample. Since the publication of the proposed regulations, the
agency has become aware of the use of the terms ``starter,'' ``starter
samples,'' and ``patient starter pack'' to refer to drug sample units.
Because the agency does not consider starter packs (as described
previously) to be drug samples, the use of the term ``starter'' on drug
sample labeling is inappropriate and should not be used.
    69. One comment stated that the proposed requirement goes beyond
the intent of Congress in PDMA and that it would not deter diversion
because the contents may be removed from the drug package.
    Designating a sample unit as a sample is the only way to
distinguish drug products manufactured for sale from drug samples.
Because Congress prohibited the sale, purchase, or trade of drug
samples, or the distribution of samples in a manner that is
inconsistent with section 503 of the act, the requirement clearly is
consistent with and furthers legislative intent. Although the
requirement does not provide a foolproof method of preventing
diversion, the requirement will help deter sample diversion by denying
diverters a market-ready product.
    70. One comment recommended, as an alternative to isolating a
manufacturing run of labels, that manufacturers be permitted to use
adhesive stickers that could be placed on the outside containers of
sample units otherwise labeled for retail.
    The agency will not object to the use of stickers provided that a
sticker is applied to both the label of the sample unit and the outside
container or packaging of the sample unit, if any, in accordance with
Sec. 203.38(a). However, to avoid giving diverters a market-ready
product, any stickers should be difficult to remove and their removal
should be evident. The agency recommends more

[[Page 67743]]

durable methods of identifying a sample product, such as overprinting.
    71. Several comments opposed the requirement in proposed
Sec. 203.38(c) on the grounds that it would entail too much expense.
    It is the agency's experience that the packaging of sample units
currently used by the majority of manufacturers already identifies the
units as samples through the use of terminology such as ``not for
sale'' or ``professional use only.'' Such wording meets the intent of
this section. Moreover, as discussed under the previous comment,
manufacturers may place an adhesive sticker on the label of a retail
unit and on the outside container or package of the unit, if any,
designating the retail unit as a sample. Therefore, the agency is
unconvinced that this requirement would impose a financial hardship on
the majority of manufacturers.
    72. One comment objected to the proposed rule as it relates to the
distribution of radiopharmaceutical samples. The comment stated that
prohibiting manufacturers from supplying radiopharmaceutical samples in
retail packages would be unduly burdensome because of the small numbers
of such samples that are distributed. The comment recommended that
radiopharmaceuticals be exempt from the requirement.
    As discussed previously, manufacturers may place an adhesive
sticker on the label of a retail unit and on the outside container or
package of the unit, if any, designating it as a sample. The agency
believes that this is sufficient to address the concerns raised by the
comment and declines to create the requested exemption.
    73. One comment stated that the increased costs associated with the
labeling requirement would affect the ability of manufacturers to
provide drugs free of charge to indigent patients.
    As discussed in the proposal (59 FR 11842 at 11855), there are some
circumstances in which prescription drugs that are provided free of
charge will not be considered samples under section 503(c)(1) of the
act and Sec. 203.3(i). The example given was of prescription drugs
provided at no charge to licensed practitioners for the treatment of
indigent patients where the main object is to ensure that patients in
need of prescription drugs have access to them (whatever their
financial circumstances) and not to promote the drugs. According to
information available to the agency, these manufacturer-sponsored
indigent patient programs generally include appropriate controls,
documentation, and verification of the distribution and use of these
products. Therefore, such drugs would ordinarily not be required to be
labeled in accordance with Sec. 203.38(c). Moreover, even where drugs
are distributed for a promotional purpose and Sec. 203.38(c) applies,
the agency does not believe, for the reasons discussed in response to
comment 71, that the labeling requirement will impose a financial
burden large enough to affect the ability of manufacturers to provide
drugs free of charge to indigent patients.
    74. One comment requested a 3-month grace period after the
effective date of the regulations in which nonlabeled sample units
already in the possession of manufacturers could be used.
    As discussed in section II.K of this document, the agency has
determined that the provisions in the final rule will not become
effective until 1 year after the date of publication of the final rule
in the Federal Register. Thus, the agency believes that manufacturers
and authorized distributors will have ample time from the publication
of the final rule to its effective date to come into compliance.
    75. One comment recommended that the proposed regulation be
rewritten to require that a drug sample label include the terms
``sample'' or ``professional sample'' and to allow, in addition to
these terms, such terms as ``not for sale'' or ``professional courtesy
package.''
    The wording used in proposed Sec. 203.38(c) was intended to be
illustrative only. Any words that clearly designate a sample unit as a
sample may be used. As discussed previously, the term ``starter'' does
not designate a sample unit as a sample, and should not be used.
9. Retail Pharmacies and Drug Samples
    In the preamble to the proposal (59 FR 11842 at 11853), the agency
explained that by limiting the distribution of samples to licensed
practitioners and to hospitals or health care entity pharmacies at the
request of a licensed practitioner, but not to retail pharmacies,
Congress clearly expressed its intent to not allow the distribution of
samples to retail pharmacies. Under proposed Sec. 203.40, the presence
in a retail pharmacy of any drug sample would have been considered
evidence that the drug sample was obtained by the retail pharmacy in
violation of section 503(c)(1) of the act.
    76. One comment opposed proposed Sec. 203.40, stating that ``there
is no statutory or evidentiary basis for creating this presumption.''
The comment also stated that FDA, as a Federal agency, lacks the
authority to shift the burden of proof in an enforcement proceeding.
    The agency has decided to withdraw proposed Sec. 203.40 from the
final rule. However, the agency continues to interpret the act to
prohibit the distribution of drug samples by a manufacturer or
distributor to a retail pharmacy and the receipt of a drug sample by a
retail pharmacy from any person. Moreover, the agency believes that the
presence of drug samples in a retail pharmacy is probative that samples
are being sold, purchased, traded, or distributed in violation of the
act. Therefore, the agency may investigate the presence of drug samples
in a retail pharmacy to determine if other violations warranting
enforcement action exist.
    77. Three comments objected to the prohibition on the distribution
of drug samples to or the receipt of drug samples by retail pharmacies.
Two comments stated that the prohibition would prevent pharmacists from
providing drug counseling to patients. One comment stated that
counseling is important because physicians are not accustomed to
counseling patients to whom they give drugs. Another comment asserted
that pharmacist-patient counseling improves compliance with drug
therapy and reduces overall health care costs. Two comments stated that
retail pharmacies should be allowed to store and dispense samples at
the direction of a physician because pharmacies are designed for drug
storage and physicians' offices are not.
    The agency recognizes that proper storage and handling of
prescription drugs and adequate counseling in connection with
prescription drug use are important concerns. However, the agency
believes that both of these goals can and must be accomplished within
the system of sample distribution established by Congress in PDMA. As
discussed previously, under this system, drug samples may not be
distributed to retail pharmacies and retail pharmacies may not receive
such samples.
    78. One comment objected to the fact that physicians are not
permitted to give samples to or to request that samples be sent to a
retail pharmacy, although they are expressly permitted to request that
samples be sent to hospital or health care entity pharmacies. The
comment argued that, except in two States, all pharmacists receive the
same type of license regardless of practice setting. The comment also
stated that all pharmacists, regardless of practice setting,
independently dispense drugs to patients in accordance with a written
prescription. The comment

[[Page 67744]]

recommended either that all types of pharmacies should be permitted to
receive samples at the direction of a licensed practitioner or none
should be permitted.
    The agency declines to follow the recommendation of the comment.
PDMA expressly provided that hospital or health care entity pharmacies
may provide drug samples to patients at the direction of a licensed
practitioner. Moreover, PDMA provided that manufacturers and authorized
distributors of record may distribute drug samples to hospital or
health care entity pharmacies at the request of a licensed
practitioner. Thus, Congress clearly expressed its intent to allow
hospital or health care entity pharmacies to receive and dispense drug
samples. No such intent is evident with respect to retail pharmacies.
    79. One comment stated that not permitting retail pharmacies to
store and to dispense samples at the direction of a physician is
inconsistent with agency policy, as expressed in the preamble to the
proposal, allowing distribution of prescription drugs through retail
pharmacies to indigent patients.
    The proposal (59 FR 11842 at 11855) did not address dispensing
prescription drugs to indigent patients through retail pharmacies. It
discussed the circumstances whereby manufacturers make arrangements to
provide prescription drugs to licensed practitioners to prescribe and
dispense at no cost or at reduced cost to indigent patients of those
practitioners. As previously stated, such drugs will ordinarily not be
considered samples. Therefore, a licensed practitioner may direct such
drugs to be distributed to and dispensed by a retail pharmacy.
10. Permissible Uses of Drug Samples by Licensed Practitioners
    In the preamble to the proposal (59 FR 11842 at 11852), the agency
described the permissible uses of drug samples by licensed
practitioners by stating:
    FDA advises that PDMA and this proposed rule would permit a
licensed practitioner to: (1) Dispense the drug sample as set forth
in section 503(d)(1) of the act; (2) donate the drug sample to a
charitable institution as provided for in proposed Sec. 203.39; (3)
return the drug sample to the manufacturer or distributor; or (4)
destroy the drug sample.
    80. One comment requested that the proposed rule be revised to
permit a licensed practitioner to give drug samples to a requesting
manufacturer for stability testing and other quality testing. The
comment stated that a manufacturer should be allowed to request and
retrieve both its own samples and the samples of other manufacturers
for this purpose. According to the comment, allowing manufacturers to
retrieve samples for testing would further the purposes of PDMA
legislation by ensuring that drug samples in the possession of licensed
practitioners are safe and effective. The comment stated that, under
the proposed rule, there are no regulatory controls on the handling and
storage of drugs in the possession of licensed practitioners. The
comment stated that by obtaining and analyzing drug samples that have
been stored in practitioners' offices under actual conditions of use,
manufacturers will be able to improve packaging design to ensure the
stability of drug samples. The comment also stated that allowing
manufacturers to obtain and analyze samples ``raises minimal, if not
nonexistent, risk of samples being diverted into secondary commerce.''
    As stated in the proposal, the agency's policy is to permit
licensed practitioners to return drug samples to the manufacturer or
distributor from which they were obtained. Although the agency had
originally only considered the scenario in which the licensed
practitioner would initiate such returns, the agency clarifies that a
request by a manufacturer to a practitioner for return of its own
samples for stability testing or other analysis would be permissible.
    The agency does not believe, however, that it is permissible under
PDMA for licensed practitioners to distribute drug samples to
manufacturers or authorized distributors who did not supply them. The
agency believes that such distribution would serve no legitimate
purpose and would unnecessarily increase the risk of sample diversion.
The agency is not persuaded that manufacturers would expend the time
and resources necessary to perform stability and quality testing on
other manufacturers' samples. Moreover, even if such testing were
performed, it is unlikely that the results of such testing would be
shared with the manufacturer of the sample. Thus, the sample quality
would not be improved by allowing manufacturers to retrieve other
manufacturers' samples. Finally, the agency believes that a risk of
diversion does exist with such distribution and that the risk is not
offset by any appreciable health benefit.
11. Drug Sample Status of Free Distributions
    In the preamble to the proposed rule (59 FR 11842 at 11855), the
agency stated that because starter packs are intended to be sold, they
are not samples and thus the sample distribution requirements do not
apply to them. The agency cautioned, however, that because starter
packs provide opportunities for diversion similar to those presented by
drug samples, manufacturers and distributors should establish and
maintain accounting, audit, and security systems for starter packs to
guard against diversion.
    81. One comment supported the agency's position on starter packs,
stating: ``We applaud the FDA for clearing up misunderstandings about
the difference between samples and starter packs.'' Another comment
agreed with the agency's position, but stated that the cautionary
language used by the agency in connection with starter packs implicitly
regulates them as samples. The comment recommended that the proposed
regulations be revised to include a definition of starter pack
indicating that it is not a sample and to allow manufacturers to decide
how to monitor the distribution of starter packs.
    As noted previously, the agency has concluded that starter packs do
not meet the statutory definition of a drug sample and thus are not
subject to PDMA requirements for sample distribution. This
determination is consistent with the definition of ``drug sample'' in
the act and final regulations and need not be codified. The agency also
clarifies that manufacturers are not required to follow the agency's
recommendations for monitoring the distribution of starter packs.
However, because of the potential for diversion of these products, the
agency continues to recommend that their distribution be monitored in a
manner designed to prevent and detect diversion.
    82. One comment sought clarification of whether specific
distributions of prescription drugs to indigent patients through retail
pharmacies would constitute a sample or nonsample transaction. In the
scenario presented by the comment, the patient would present a
prescription and a ``prescription drug card'' to the retail pharmacist,
who would fill the prescription from a stock bottle and be reimbursed
for the cost of the drug and patient counseling services through a
``pharmacy benefits company.'' The comment stated that the manufacturer
would have a contract with the pharmacy benefits company to handle all
transactions for a drug under the manufacturer's indigent drug program.
    The agency advises that the prescription drug dispensed in the
scenario presented by the comment would not be considered a sample for
purposes of PDMA because the drug product comes from the stock of the

[[Page 67745]]

retail pharmacy and is intended to be sold.
    83. One comment requested that the agency recognize that drugs
distributed to a physician for use by the physician's family are not
samples. According to the comment, such drugs should not be considered
samples because they are not intended to promote the drug.
    The agency believes that distributions of free prescription drugs
to a physician for use by his family do constitute samples because they
are intended to promote the marketing of a drug. A licensed
practitioner is clearly benefitted by the provision of free drugs for
personal or family use. The agency believes that the benefit conferred
on a practitioner in this manner by a manufacturer or authorized
distributor is clearly intended to influence the physician's
decisionmaking process about what drugs to prescribe for patients in
the future and is therefore intended to promote the sale of the drug.
12. Bid and Commercial Samples
    In the preamble to the proposal (59 FR 11842 at 11856), the agency
discussed ``bid'' and ``commercial'' samples. The agency stated that
these include specimens of bulk drug ingredients, precursor specimens,
or finished dosage forms that are distributed to a manufacturer in
limited quantities for testing and evaluation purposes. As noted by the
agency, specimens of bulk drug ingredients may be used by manufacturers
to determine whether the bulk drug is compatible with the
manufacturer's production equipment or suitable for use in formulating
drug products. Finished dosage forms may be used by repackers to
determine if they are suitable for use with various packaging materials
and equipment. Citing the definition of drug sample in section
503(c)(1) of the act and proposed Sec. 203.3(i), the agency stated
that, because of the statutory language and the threat of diversion,
persons who distribute bid or commercial samples should follow the
requirements for sample distribution set forth in the act and the
proposal.
    84. One comment asked if the agency intended for manufacturers
providing materials for stability trials or for validation studies to
follow sample distribution requirements. The comment also sought
guidance on which distributions of prescription drugs would be covered
by the terms ``bid'' and ``commercial'' samples.
    The agency clarifies that the terms ``bid'' and ``commercial''
samples, as used by the agency in the proposal and in the final rule,
refer to distributions of bulk drug substances or finished dosage forms
by a manufacturer or distributor to a manufacturer at no cost for
testing and evaluation purposes. Such distributions would include free
distributions of bulk drug substances to conduct stability, validation,
or characterization studies, or for other purposes related to testing
and evaluation of the bulk drug substance. Such distributions would
also include the free distribution of a limited quantity of a finished
dosage form to a repackager for testing with the repackager's packaging
equipment. As discussed in comment 85, the agency has determined that
distributions of bid and commercial samples are not subject to
requirements for sample distribution under PDMA or the final rule.
    85. Several comments objected to subjecting bid and commercial
samples to the same requirements as prescription drug samples on the
grounds that bid and commercial samples are not intended to promote the
sale of a drug and thus are not drug samples. Two comments stated that
adhering to drug sample distribution requirements for bid and
commercial samples would be burdensome to small companies and drug
manufacturers such as repackers that do not have licensed practitioners
on their staff. One of these comments stated that the burden would not
be offset by any appreciable public health benefit. Several comments
stated that the likelihood of diversion of commercial or bid samples is
extremely small. Another comment stated that the potential for
diversion of bid and commercial samples asserted by the agency is
unsupported in either the congressional or administrative record.
Several comments recommended applying existing recordkeeping
requirements for prescription drugs to bid and commercial samples.
    Although bid and commercial samples arguably meet the literal
definition of a drug sample under section 503(c)(1) of the act, the
agency believes that application of the statutory requirements for drug
sample distribution to such drugs would be inconsistent with
congressional intent. In PDMA's legislative history, Congress stated
that ``pharmaceutical manufacturers and distributors have a long-
established practice of providing samples of their prescription drugs
to physicians and other practitioners licensed to prescribe such drugs
who, in turn, provide them to their patients. The ostensible purpose is
to acquaint the practitioner with the therapeutic value of the
medication and thus encourage the written prescription of the drug.''
(See H. Rept. 100-76 at p. 12.) Because bid and commercial samples are
not provided to practitioners or their patients, the agency believes
that Congress did not intend the drug sample provisions of PDMA to
apply to them. Therefore, the agency is no longer recommending that the
sample distribution requirements in PDMA and the final rule be followed
for bid and commercial samples. However, because the potential for
diversion exists, the agency recommends that manufacturers and
distributors monitor their bid and commercial sample distribution to
prevent and detect diversion.

F. Application of PDMA to Bulk Pharmaceutical Chemicals

    In the preamble to the proposal (59 FR 11842 at 11843), the agency
concluded that bulk drug substances that are subject to section 503(b)
of the act (i.e., prescription) are covered under PDMA.
    86. One comment objected to the application of any portion of PDMA,
including the sample distribution requirements and wholesale
distribution requirements, to bulk pharmaceutical chemicals (BPC's).
The comment argued that PDMA was intended by Congress to apply to
finished dosage forms only and that the proposed regulations cannot be
practically applied to BPC's. The comment stated that the legislative
history of PDMA indicates that Congress was concerned with the effects
of diversion on consumers and that, since BPC's are not sold to
consumers, Congress did not intend for the act to apply to them. The
comment also stated that BPC's were not mentioned by Congress in either
PDMA or its legislative history and the absence of legislative
reference to BPC's indicates that Congress did not even consider
including BPC's under PDMA. The comment argued that this reasoning is
consistent with the agency's decision to exclude blood and blood
components from wholesale distribution requirements in PDMA.
    The comment also said that the proposed regulations dealing with
wholesale distribution and drug samples cannot be practically applied
to BPC's. The comment stated, for example, that the proposed sample
regulations would not allow a BPC manufacturer to furnish a finished
dosage form manufacturer with BPC samples because a manufacturer is
prohibited from distributing drug samples to anyone other than a
licensed practitioner or a hospital or health care entity pharmacy
designated by a licensed practitioner. The comment said that BPC
manufacturers could not comply with wholesale licensing requirements in
part 205 because BPC's

[[Page 67746]]

are distributed in an entirely different way than other prescription
drugs. The comment recommended that if BPC's are to be included under
PDMA, the proposed regulations should be revised to ``include
regulations specific to and appropriate to BPC's that address the
problems of diversion and counterfeiting.''
    The preamble to the proposed regulations (59 FR 11843) discussed
the applicability of PDMA not to BPC's, but to bulk drug substances
(BDS's). As discussed in section II of this document, the definition of
bulk drug substance used in the final rule includes only those
substances that become active ingredients when used in the
manufacturing, processing, or packaging of a drug. It is the agency's
understanding that the term BPC, as used in the comment, includes
substances that do not become active ingredients when used in the
manufacturing, processing, or packaging of a drug (i.e., substances
that are not pharmacologically active, do not furnish direct effect in
the diagnosis, cure, mitigation, treatment, or prevention of disease,
and do not affect the structure or any function of the body of humans)
and thus are not bulk drug substances.
    The statutory language of PDMA makes it applicable to all drugs (as
defined under section 201(g)(1) of the act) that are subject to section
503(b)(1) of the act. Although components of finished drug products
that are not bulk drug substances may meet the statutory definition of
a drug under section 201(g)(1)(D) of the act, such materials are not
prescription drugs as described under section 503(b)(1) of the act.
Accordingly, non-BDS components of finished drug products are not
subject to PDMA requirements (e.g., drug sample or wholesale drug
distribution). In addition, as discussed under the preceding comment,
the drug sample distribution requirements of PDMA do not apply to
specimens of BDS's provided to finished dosage form manufacturers for
testing and evaluation purposes.
    The agency disagrees, however, that PDMA was not intended by
Congress to apply to prescription BDS's or that the distribution of
prescription BDS's is so different than that of finished dosage forms
that the wholesale distribution requirements of PDMA cannot be
practically applied to BDS's. As noted previously, the statutory
language of PDMA makes it applicable to all drugs subject to section
503(b)(1) of the act. A BDS that is intended to furnish pharmacological
activity or other direct effect when it becomes a finished dosage form
that is a prescription drug necessarily falls within the scope of
section 503(b)(1) of the act. Thus, on its face PDMA applies to
prescription BDS's. Although Congress did not specifically refer to
BDS's in the legislative history of PDMA, it also did not specifically
refer to finished dosage forms or otherwise indicate that the scope of
PDMA is limited to finished dosage forms. Moreover, the agency
disagrees with the assertion that because prescription BDS's are not
sold to consumers Congress did not intend for PDMA to apply to them.
Prescription BDS's are used as components of prescription drug products
that are sold to consumers, and clearly any practices that adversely
impact upon the quality of prescription BDS's could ultimately harm
consumers. Thus, the agency believes that PDMA was intended by Congress
to apply to prescription BDS's.
    The agency also believes that the wholesale distribution provisions
of PDMA should and must be applied to prescription BDS's. Prescription
BDS's are distributed from the manufacturer of the BDS to the
manufacturer or compounder of the finished dosage form of the drug.
That process of distribution may be direct or, as is generally the case
for prescription BDS's manufactured by a foreign manufacturer, through
one or more brokers/wholesalers. This system of distribution meets the
definition of wholesale distribution under section 503(e)(4)(B) of the
act. Moreover, because this system of distribution may involve several
transfers of the bulk drug substance through numerous parties and
facilities over varying periods of time, similar concerns exist with
BDS's as with finished dosage forms regarding the personnel and
facilities through which BDS's are distributed and the manner in which
they are stored and handled. Accordingly, manufacturers and
distributors of prescription BDS's that engage in wholesale
distribution of these substances are required, under section
503(e)(2)(A) of the act and part 205, to be State licensed wholesale
distributors and to meet other requirements for wholesale distribution
of prescription drugs under PDMA and the agency's regulations.
    Thus, for prescription BDS's imported into the United States,
including BDS's intended for pharmacy compounding, the person
responsible for the importation of such BDS is engaged in the wholesale
distribution of a prescription drug and must be State licensed in the
State into which the prescription BDS is imported and from which
distribution of such BDS occurs. In addition, any agent or wholesaler
that subsequently distributes the BDS in interstate commerce must be
licensed by the State from which the distribution occurs. For
domestically manufactured prescription BDS's, the BDS manufacturer must
be licensed by the State where its facilities are located. Agents that
subsequently distribute the prescription BDS must be licensed by the
State from which the distribution of the BDS occurs.
    In addition, any agent or distributor that is not an authorized
distributor of record must provide a statement of origin before
distributing the BDS. Thus, except for those prescription BDS
distributors that have a written agreement with the BDS manufacturer to
distribute the manufacturer's products for a period of time or for a
number of shipments, prescription BDS distributors must provide a
statement of origin showing all prior sales and purchases of the
prescription BDS being distributed and the names and addresses of the
parties to such transactions. Under Sec. 203.50(c) of the final rule, a
manufacturer that subjects a prescription BDS to any additional
manufacturing processes to produce a different drug is not required to
provide to a purchaser a drug origin statement.

G. Application of PDMA to Radiopharmaceuticals

    87. One comment requested that distributions of
radiopharmaceuticals be exempt from the definition of wholesale
distribution in proposed Sec. 203.3(y) and part 205 such that State
licensing and drug origin statement requirements would be inapplicable
to these drugs. The comment made the following points about
radiopharmaceuticals: (1) Radiopharmaceuticals differ from other
prescription drugs in that their radioactive component causes them to
lose clinical effectiveness within a few days of manufacture; (2)
radiopharmaceuticals are prepared in small quantities, shipped
overnight, and used the same day they are received; (3) neither
manufacturers nor retailers can have inventory of these drugs for
longer than a couple of days; (4) the unique properties of
radiopharmaceuticals make many of the storage, handling, and
accountability considerations of part 205 inapplicable; (5) regulation
by FDA would be inappropriate and was not intended by Congress because
it would duplicate existing regulations by several Federal, State, and
local agencies; (6) existing regulations cover how radiopharmaceuticals
are manufactured, packaged, labeled, stored, shipped, used, and
controlled; and (7) radiopharmacies are licensed under State retail
pharmacy laws that impose

[[Page 67747]]

requirements relating to facilities, security, storage, and
recordkeeping.
    The agency declines to adopt the exclusions recommended by the
comment. The term radioactive drugs, as defined under 21 CFR 310.3(n),
encompasses both radioactive and nonradioactive drug products.
Radioactive drugs include drug products derived from by-product
materials from nuclear reactors (i.e., radionuclide generators),
cyclotron-produced products (i.e., Ga-67 Citrate, Tl-201 Chloride, and
In-111 Oxide), and positron emission tomography products (e.g.,
Rubidium-82 and fludeoxyglucose). Nonradioactive reagent kits are also
radioactive drugs and are compounded with radioactive substances by
radiopharmacies or hospitals to make the final drug product.
    As the comment points out, most radioactive drugs have a limited
shelf-life which requires that they be distributed in a different
manner than many prescription drugs. In addition, certain Federal and
various State requirements for shipping, storage, handling, and
recordkeeping apply to radioactive drugs. However, as discussed
previously in conjunction with medical gases and the comments on bulk
drugs, PDMA applies to all prescription drugs. Therefore, unless there
is a clear indication in PDMA or its legislative history that Congress
did not intend for PDMA to apply to a specific class of drugs, the
agency does not believe that it is appropriate to exempt the class from
PDMA requirements and restrictions. Except for the factors mentioned
above, there is no indication in PDMA or its legislative history that
Congress intended that radioactive drugs be treated differently than
other types of prescription drug products. The agency does not believe
that these factors, by themselves, indicate a clear congressional
intent to exempt radioactive drugs from PDMA or to exclude radioactive
drugs from specific PDMA requirements.

H. Wholesale Distribution

1. Section 203.50(a) and (a)(6)
    Proposed Sec. 203.50(a) and (a)(6) stated:
    * * * Before the completion of any wholesale distribution by a
wholesale distributor of a prescription drug for which the seller is
not an authorized distributor of record to another wholesale
distributor or retail pharmacy, the seller shall provide to the
purchaser a statement identifying each prior sale, purchase, or
trade of such drug. This identifying statement shall include: * * *
The business name and address of all parties to each prior
transaction involving the drug, starting with the manufacturer * *
*.
    88. One comment objected to Sec. 203.50(a) and (a)(6) because it
would require an unauthorized distributor to provide information about
all prior sales, purchases, or trades of the drug, starting with the
manufacturer, even in cases where the seller from whom the distributor
received the drug was an authorized distributor of record and did not
provide any pedigree for the drug. The comment stated that ``the
proposed regulation would make it impossible, as a practical matter,
for authorized distributors to sell into the [prescription] specialty
market without providing a pedigree,'' which was not intended by
Congress. The comment recommended revising the proposed rule to require
that the drug origin statement (i.e., the ``pedigree'') only go back to
the last authorized distributor of record.
    The agency declines to revise the proposal in the manner suggested
by the comment. Section 503(e)(1)(A) of the act requires that, prior to
completion of a wholesale distribution of a prescription drug by a
person who is not the manufacturer or an authorized distributor of the
drug, a statement must be provided to the recipient identifying each
prior sale, purchase, or trade of the drug, including the date of the
transaction and the names and addresses of all parties to the
transaction. There is no indication in PDMA that Congress intended that
the statement include only those sales, purchases, or trades since the
drug was last handled by an authorized distributor. Thus, an
unauthorized distributor is required to provide a full drug origin
statement in accordance with PDMA and the final rule whether or not it
has purchased a prescription drug from an authorized distributor of
record. Although the agency encourages authorized distributors to
provide a drug origin statement to unauthorized distributors, they are
not required to do so under PDMA or the final rule.
    89. In the preamble to the proposal (59 FR 11842 at 11856 and
11857), the agency discussed at length its views on the use of coding
that represents required information on the drug origin statement. The
agency stated that, since the enactment of PDMA, FDA's position has
been that the use of coded statements on the drug origin statement that
make information unintelligible to purchasers without the intervention
of a third party to decipher the code (e.g., ``this shipment of drugs
came from unauthorized distributor RS47GS2273'') does not provide
purchasers with the information that Congress intended that they
receive. Moreover, the PDA, which amended section 503(e)(1) of the act
to require, among other things, that the drug pedigree contain the
``names and addresses of all parties to the transaction,'' made clear
that product source codes may not be used on the drug pedigree as a
substitute for required information.
    One comment supported the agency's position on the use of coding.
The comment stated that the practice of using codes places a large
burden on distributors and recommended that the agency go a step
further and revise the proposed regulations to prohibit the use of
product source codes on drug origin statements.
    The agency believes that its position against the use of product
source codes as a substitute for the name and address of buyers or
sellers in drug origin statements was adequately addressed in the
preamble to the proposal and restated here. Accordingly, the agency
declines to codify a prohibition on the use of such codes in the final
regulation.
2. Section 203.50(b)
    The agency has added Sec. 203.50(b) to clarify that the drug origin
statement is subject to the revised record retention requirements of
Sec. 203.60(d) and must be retained by all wholesale distributors
involved in the distribution of the drug product, whether authorized or
unauthorized, for 3 years. The agency is providing this clarification
in response to numerous inquiries that it has received since the
proposed rule was published.
3. Section 203.50(c)
    Proposed Sec. 203.50(c) stated: ``Each manufacturer shall maintain
at the corporate offices a current written list of all authorized
distributors of record.'' Proposed Sec. 203.50(c)(3) stated: ``Each
manufacturer shall make its list of authorized distributors of record
available on request to the public for inspection or copying. A
manufacturer may impose reasonable copying charges for such requests
from members of the public.''
    90. One comment recommended that the list of distributors could be
maintained at any company site and could be made available via
electronic media or within 24 hours to other sites.
    The rule does not require company records to be kept at every
company site. As long as a company can produce the required information
for review and copying by FDA or other Federal, State, or local law
enforcement agencies at the site where they are requested within 2
business days, the company may maintain its records at a central
location.

[[Page 67748]]

    91. Several comments objected to the proposed requirement that
manufacturers must make their list of authorized distributors of record
available to the public. The comments stated that this information is
proprietary in nature and should be kept confidential. One comment
stated that FDA has acknowledged that this information was considered
proprietary in the past.
    Other comments stated that providing such information is unduly
burdensome on manufacturers. One comment recommended adding a
``reasonable hours of inspection and reasonable copying charges''
provision to the section. Another comment recommended revising the
section to require only that industry respond to individual inquiries
about whether a specific wholesaler is an authorized distributor of
record.
    The requirement that manufacturers maintain a current list of
authorized distributors of record appears at section 503(e)(1)(B) of
the act. In the legislative history, Congress stated that this list
must be made available for public inspection. (See S. Rept. 100-303, p.
7.) Thus, the agency believes that denying public access to lists of
authorized distributors maintained by manufacturers would contradict
Congress' clearly expressed intent.
    In addition, the agency disagrees that a manufacturer's list of
authorized distributors constitutes proprietary or confidential
information. No provision of PDMA or the act designates such
information as proprietary, and the agency is unaware of other laws or
regulations that designate such information as proprietary. Moreover,
the agency has not previously stated that this information is
proprietary. In fact, in a 1988 letter to regulated industry (see
Letter from Daniel L. Michels, Director, Office of Compliance to
Regulated Industry, Docket No. 88N-258L, August 1, 1988), the agency
specifically requested that manufacturers make lists of authorized
distributors available at reasonable charge to any requesting person.
    Finally, the final rule permits manufacturers to impose reasonable
copying charges for requests. Such charges could include clerical time
used to create copies, copying costs, and mailing costs, if the
requested copies are mailed. Therefore, except for costs associated
with creating, updating, and maintaining the authorized distributors
lists themselves (a cost that has been evaluated separately by the
agency in the ``Paperwork Reduction Act of 1995'' section under
Sec. 203.50(d)), the cost to comply with revised Sec. 203.50(d)(3)
should be reimbursed.
4. Sales to Licensed Practitioners by Retail Pharmacies
    In the preamble to the proposal (59 FR 11842 at 11858), the agency
stated:
    FDA believes that permitting the sale of small quantities of
prescription drugs by retail pharmacies to licensed practitioners
for office use without the requirement of a State wholesale
distributor's license satisfies a legitimate need and is consistent
with the intent of the statute. Accordingly, the agency has included
language in proposed Sec. 203.3(y) that would exclude the sale of
minimal quantities of drugs by retail pharmacies to licensed
practitioners for office use from the definition of ``wholesale
distribution.''
    In this context, sales of prescription drugs by a retail
pharmacy to licensed practitioners for office use will be considered
to be minimal if the total annual dollar volume of prescription
drugs sold to licensed practitioners does not exceed 5 percent of
the dollar volume of that retail pharmacy's annual prescription drug
sales.
    92. One comment supported the agency's decision to exclude minimal
sales of prescription drugs by retail pharmacies from the definition of
wholesale distribution and recommended that the 5 percent threshold be
codified in the final regulation under Sec. 203.3(y)(11).
    The agency believes that its position on what constitutes a minimal
amount of prescription drugs for the purposes of revised
Sec. 203.3(cc)(10) was adequately explained in the preamble to the
proposal and need not be codified.
    93. Another comment recommended that the 5 percent threshold be
increased to 20 percent and should be based on annual, not monthly or
weekly, sales of a retail pharmacy. According to the comment, the 5
percent threshold would disadvantage small, independent pharmacies
because a large percentage of their sales is derived from supplying
local practitioners with prescription drugs. The comment also said that
the 5 percent threshold could be reached easily by a pharmacy that
supplies expensive drugs, such as chemotherapy medications, to
practitioners.
    The distribution of prescription drugs to practitioners for office
use constitutes wholesale distribution under section 503(e) of the act
and proposed Sec. 203.3(y) (i.e., distribution to other than a consumer
or patient). The agency excluded the sale of minimal quantities of
drugs by retail pharmacies to licensed practitioners for office use
from the definition of wholesale distribution 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. Thus, the exemption was not
created to confer a special benefit on retail pharmacies, but to meet
the legitimate needs of licensed practitioners. The agency believes
that the 20 percent threshold recommended by the comment is
inconsistent with the purpose of the exemption and declines to follow
the recommendation. The agency notes that a retail pharmacy is not
precluded from making more than 5 percent of its annual sales to
licensed practitioners. It must, however, obtain a State wholesale
distributor license to do so.

I. Request and Receipt Forms, Reports, and Records

1. Section 203.60(e)(1)
    Proposed Sec. 203.60(e)(1) stated: ``Any person required to create
or maintain reports, lists, or other records under PDMA, PDA, or this
part shall retain them for at least 3 years after the date of their
creation.''
    94. One comment objected to the proposed requirement in
Sec. 203.60(e)(1), stating that it conflicts with the 2-year retention
period requirement under Sec. 205.50(f)(2). The comment said that
changing the record retention time in the manner proposed would
``require 44 states that adopted FDA's 2-year standard to enact
legislative and/or regulatory changes in order to have licensing
programs that meet the minimum federal requirements.'' The comment also
said that changing to a 3-year record retention period would serve no
apparent public health purpose, citing the agency's rationale behind
the 2-year requirement in the preamble to the final rule on State
wholesale licensing guidelines. The comment recommended that the
proposed section should be revised to require record retention for 2
years for all records kept by prescription drug wholesalers under PDMA.
    Section 205.50(f)(1) requires that inventories and records of
transactions regarding the receipt and distribution or other
disposition of prescription drugs be created and maintained. Section
205.50(f)(2) requires that such records be ``made available'' to
authorized Federal, State, or local law enforcement agencies for a
period of 2 years following the disposition of the drugs to which the
record relates. Because the requirement under proposed
Sec. 203.60(e)(1) that records be retained for 3 years after the
creation of the record would apply to records required by
Sec. 205.50(f)(1), the requirements could potentially be conflicting.
This result

[[Page 67749]]

was not anticipated by FDA at the time the proposed rule was issued.
    The agency agrees with the comment that it is appropriate to
establish one record retention period for all wholesale distribution
records required to be created and maintained under PDMA and parts 203
and 205. The agency has determined that because the shelf life of the
majority of prescription drug products is longer than the 2-year period
specified in Sec. 205.50(f)(2), that period is insufficient to
facilitate recalls by manufacturers and to enable the agency to respond
to public health emergencies related to prescription drug distribution.
Moreover, certain records required to be created and maintained under
part 203, such as drug origin statements and written authorization
agreements between manufacturers and distributors, are not linked to
the disposition of a particular drug product or drug products.
Therefore, the agency has decided to adopt the record-retention period
specified in proposed Sec. 203.60(e)(1) (renumbered Sec. 203.60(d)),
which is 3 years from the time of creation of a record, for all
wholesale distribution records required under PDMA, including those
wholesale distribution records required under Sec. 205.50(f)(1).
Section 205.50(f)(2) has been amended to incorporate the 3-year
requirement.
2. Section 203.60(e)(2)
    Proposed Sec. 203.60(e)(2) stated: ``Any person required to create
or maintain reports, or records relating to the distribution of drug
samples shall retain them for at least 3 years after the date of their
creation or 3 years after the date of expiration of a drug sample for
which the record is being kept, whichever is later.''
    95. Several comments contended that the additional burdens that
would result from record retention requirements over 3 years outweigh
the possible benefits. One comment stated that the proposed section
would require drug sample records to be kept a minimum of 6 years. Two
comments stated that it could require record retention for 8 years. One
comment stated that ``if a practitioner signs a receipt for two
different drug samples with different expiration dates, a manufacturer
has to go through line by line to see if a record has to be kept.'' A
similar comment stated that the proposed section would require either
implementation of a complicated and expensive process for retaining
records to make maximum effective use of storage space or storage of
all records for the same length of time, taking into account the drug
with the longest shelf life plus 3 years.
    Two comments stated that section 503(d)(2)(C) and (d)(3)(C) of the
act specifically require that records for drug samples be maintained
for 3 years and that FDA has no authority to require retention for a
longer period.
    Several comments recommended that the proposed section be revised
to require a maximum record retention period of 3 years. One comment
recommended revising the section to require retention for the greater
of 3 years from the time of creation or 1 year after the date of
expiration. Another comment recommended allowing manufacturers and
distributors to decide how to meet PDMA requirements, while still being
accountable to provide a complete distribution history.
    The agency agrees that the burdens associated with the record-
retention requirement in proposed Sec. 203.60(e)(2) may outweigh its
benefits. Although the use of the expiration date as a reference point
would ensure that the record is kept for the full shelf life of the
drug sample, drug sample distribution records may refer to different
types of drugs from varying lots that have different expiration dates.
Thus, as noted by the comments, requiring a record retention period
based on expiration dating would necessitate maintaining different
distribution records for different periods of time or maintaining all
records for a period that is based on the drug or drugs with the
longest shelf life. The agency believes that retention of records
relating to drug samples for 3 years from the time of their creation is
sufficient to effectuate recalls and to maintain accountability over
sample distribution. Accordingly, the agency has eliminated proposed
Sec. 203.60(e)(2) in the final rule. Under revised Sec. 203.60(d), all
records under PDMA and part 203, including records relating to the
distribution of drug samples, must be retained for 3 years from the
date of their creation.
3. Section 203.60(e)(3)
    On its own initiative, the agency is deleting proposed
Sec. 203.60(e)(3) in the final rule. The proposed requirement would
have required manufacturers and authorized distributors of record to
maintain records of drug sample distribution identifying the drugs
distributed, the recipients of the distributions, and all drug samples
destroyed or returned to the manufacturer for 3 years. The agency
believes that the final rule, as revised, contains adequate
recordkeeping provisions to ensure accountability over drug sample
distribution.
4. Section 203.60(f)
    Proposed Sec. 203.60(f) stated that any person required to create
or maintain request and receipt forms, reports, lists, or other records
under PDMA, PDA, or part 203 shall make them available upon request, in
a form that permits copying or other means of duplication, to FDA or
other Federal, State, or local regulatory and law enforcement officials
for review and reproduction.
    On its own initiative, the agency has revised proposed
Sec. 203.60(f) (renumbered Sec. 203.60(e)) to specify that the records
must be made available within 2 business days of a request. The agency
believes that this constitutes a reasonable period of time to obtain
records kept off-site and is consistent with other PDMA record
production requirements.

J. Penalties and Rewards

    In the preamble to the proposed rule (59 FR 11842 at 11860), the
agency stated that ``most violations of the act are punishable as
misdemeanors.'' The agency later stated that ``most PDMA violations are
felonies punishable by a prison term of not more than 10 years, a fine
of not more than $250,000, or both * * *.''
    96. One comment stated that the two statements made by the agency
are conflicting and should be reconciled.
    The agency clarifies that the first statement (``most violations of
the act are punishable as misdemeanors'') refers to the entire act (see
sections 303(a)(1) and (a)(2) of the act), not the PDMA provisions. As
stated in the preamble to the proposed rule (59 FR 11842 at 11860),
most PDMA violations, except for the distribution of a drug sample in
violation of section 503(d) of the act and the failure to comply with
the drug origin statement requirement in section 503(e)(1)(A) of the
act, are felonies.

K. Amendments to 21 CFR Part 205

    In the proposal, the agency proposed an amendment to the
introductory paragraph of Sec. 205.50(c) that would require that
prescription drugs be stored by wholesale distributors at appropriate
temperatures and under appropriate conditions in accordance with the
labeling requirements of the drugs or with the requirements of USP
XXII. The agency also proposed an amendment to Sec. 205.50(c)(1) that
would require that, if no storage requirements are established for a
prescription drug, the drug must be held at ``controlled room
temperature'' as defined in USP XXII. Current Sec. 205.50(c)(1) states
that, if no storage requirements are established for a prescription
drug, the drug ``may'' be

[[Page 67750]]

held at controlled room temperature as defined in an official
compendium.
    97. One comment objected to the proposed changes to Sec. 205.50(c)
on the grounds that FDA incorrectly characterized the changes as
``technical changes'' in the preamble and has given inadequate notice
and opportunity to comment on the changes under section 553 of the
Administrative Procedures Act (APA). The comment stated that
incorporation by reference of USP standards in Sec. 205.50(c) and
requiring adherence to USP standards for controlled room temperature in
Sec. 205.50(c)(1) would significantly increase the burdens on industry
in complying with Sec. 205.50. According to the comment, such
``substantive'' changes cannot be made unless FDA fully informs
interested parties about the elements of the new standard, including
any new compliance obligations, and provides an opportunity for comment
on the impact of the changes. The comment recommended that ``FDA
initiate rulemaking proceedings that will adequately apprise interested
parties of the issues involved'' and forbear from enforcing the
proposed changes until the completion of the rulemaking.
    The agency agrees that the proposed amendments to Sec. 205.50(c)
amount to more than ``technical changes'' and that they should be the
subject of a separate proposal with a more detailed explanation of the
associated issues and impacts. Accordingly, the agency has decided to
withdraw its proposal of these amendments. Should the agency decide to
repropose the amendments in the future, it will do so in a manner that
provides sufficient notice and opportunity for comment.

L. Analysis of Impacts in the Proposed Rule

    In the section entitled ``Analysis of Impacts'' in the preamble to
the proposal (59 FR 11842 at 11860 and 11861), the agency provided its
assessment of the impacts of the proposed rule under Executive Order
12866 and the Regulatory Flexibility Act (Public Law 96-354). The
agency stated that the proposed rule is consistent with the principles
set out in the Executive Order and is not a significant regulatory
action as defined by the Executive Order. The agency explained that
most of the requirements in the proposed rule have already been
implemented by the regulated industry in response to PDMA's enactment,
FDA's guidance, and industry trade associations' recommendations. The
agency determined that the regulatory costs of the proposal are due to
increased paperwork requirements. The costs were calculated by
multiplying the estimated time necessary to complete the paperwork for
each section of the proposal by a standard hourly wage rate. In
addition, based on its finding that many of the requirements in the
proposed rule have been implemented by regulated industry, including
small entities, the agency certified that the proposed rule would not
have a significant economic impact on a substantial number of small
entities.
    98. One comment stated that ``FDA's assessment of all costs and
benefits of available regulatory alternatives and selected regulatory
approaches does not prove that the proposed rule maximizes net
benefits.'' The comment stated that the proposed rule will have a
``significant negative effect on the industry, health care costs, the
environment, and State licensing agencies.'' This impact, the comment
stated, is not outweighed by benefits in controlling, preventing, or
detecting diversion, or by adding significantly to the safety of the
consumer. Another comment stated that the proposed rule would add
significant costs, including new systems costs, without corresponding
benefits.
    The agency believes that the final rule is consistent with the
principles set forth under Executive Order 12866. The benefits of the
final rule, including the public health and safety benefits, have been
discussed extensively in the proposal and in this notice. The estimated
costs to industry of the final regulation, which are due primarily to
additional paperwork costs, are set forth in section IV.B of this
document and have been substantially revised from the estimates
provided in the proposal. The agency has attempted to accurately
represent the benefits and costs of the final regulation, has carefully
analyzed them, and believes that the regulatory approaches chosen for
the final rule maximize net benefits.
    99. One comment stated that the agency's financial impact estimates
are ``much too low.'' According to the comment, FDA has not considered
costs associated with the proposed requirements, including travel and
personnel expenses in conjunction with inventorying sales
representatives and conducting investigations, increased paperwork in
conjunction with comarketing agreements, and administrative and other
costs in conjunction with longer record maintenance periods and
tracking of bid and commercial samples.
    As discussed in section IV.C of this document, the agency has
significantly increased its estimates of the reporting and
recordkeeping burdens associated with the final rule under the
Paperwork Reduction Act of 1995. In addition, the agency has revised
the analysis of impacts section in the final rule to include estimates
of nonpaperwork costs of the final rule, such as storage costs
associated with retaining records.
    100. Two comments disagreed with FDA's assertion that most of the
proposed requirements have been implemented by the industry in response
to PDMA's enactment, FDA's guidance, and industry trade associations'
recommendations. One of the comments stated that the proposed rule
contains items which are a ``significant departure'' from currently
understood requirements. The comment cited the following specific
proposed requirements and recommendations: The requirement under
proposed Sec. 203.60(e)(2) for retention of drug sample records for 3
years past the expiration date of the drug sample; the requirement
under proposed Sec. 203.37(b) for reporting possible falsifications of
drug sample records; the requirement under proposed Sec. 203.38(c) for
labeling of sample units; the requirements under proposed Secs. 203.30
and 203.31 for drug sample receipts; and the agency's recommendation in
the proposal that bid or commercial samples be tracked using PDMA
sample controls.
    As discussed previously, many of the proposed requirements and
recommendations cited by the comment have been deleted or substantially
modified in the final rule in response to other comments or on the
agency's initiative. Nevertheless, FDA acknowledges that some of the
proposed requirements may not have been implemented by industry at the
time the proposal was published and that too much reliance may have
been placed by the agency on prior industry implementation in the
``Analysis of Impacts'' section of the proposal. The agency has
significantly revised its analysis of impacts for the final rule.

 M. Estimated Annual Reporting and Recordkeeping Burden

    101. Several comments stated that the estimated burdens set forth
under the ``Paperwork Reduction Act of 1980'' section of the proposed
rule (59 FR 11842 at 11861) were too low. One comment stated that FDA
grossly underestimated the annual reporting and recordkeeping burden
and that both industry and FDA will be burdened more than anticipated
by implementation of many of the regulations. Another comment stated
that ``the agency's predicted time estimates to comply with the rule
are so

[[Page 67751]]

unrealistic as to be arbitrary and capricious.''
    One comment cited specific examples of estimates that it considered
to be too low. The comment stated that the agency's estimate of 30
minutes to comply with the recordkeeping requirements under proposed
Sec. 203.31(d) ``grossly understates the time and expense to comply.''
The comment stated that the estimate of 30 seconds to comply with
Secs. 203.30(c) and 203.31(c) takes into account only the time
necessary to sign a sample receipt, but not the time necessary for a
representative to fill out the receipt with the required information or
the time that a representative will have to wait for a practitioner or
his or her designee to sign the receipt. The comment stated that the
agency's estimate of 30 and 60 minutes to meet the recordkeeping
requirements under proposed Sec. 203.37(a) and (b), respectively, may
accurately reflect the time necessary to write up the report, but not
to initiate and complete a thorough investigation. According to the
comment, the estimate of 24 hours to prepare policies and procedures
under proposed Sec. 203.34 underestimates the time it will take for a
company to research its activities, prepare and revise draft guidance
documents, type the material, and obtain management approval. The
comment stated that the agency neglected to provide an estimate for the
time it will take to comply with proposed Sec. 203.60. Finally, the
comment stated that FDA has ignored the burden the proposal will place
on the agency.
    Based upon the comments, the agency has significantly modified and
increased its estimate of the reporting and recordkeeping burdens
associated with the final rule under the section of this notice
entitled ``Paperwork Reduction Act of 1995.'' Regarding the absence of
a burden estimate for proposed Sec. 203.60, the agency advises that it
has included an estimate of the costs associated with the record
retention requirement in revised Sec. 203.60 in section IV.B of this
document. Finally, the agency expects its administrative costs
associated with oversight of the final rule to be minimal. As discussed
below, the public has 60 days from the publication of the final rule to
comment on the accuracy of FDA's revised burden estimates, and the
agency encourages interested parties to do so.

IV. Analysis of Impacts

    FDA has examined the impacts of the final rule under Executive
Order 12866, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the
Unfunded Mandates Reform Act (Public Law 104-4). Executive Order 12866
directs agencies 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). The Regulatory
Flexibility Act requires an analysis of regulatory options that would
minimize any significant economic impact of a rule on small entities
unless an agency certifies that a rule will not have a significant
economic impact on a substantial number of small entities. The Unfunded
Mandates Reform Act requires that agencies prepare an assessment of
anticipated costs and benefits before proposing any rule that may
result in the expenditure by State, local, and tribal governments, in
the aggregate, or by the private sector, of $100 million (adjusted
annually for inflation) in any 1 year. The agency believes that this
final rule is consistent with the regulatory philosophy and principles
identified in the Executive Order, Regulatory Flexibility Act, and
Unfunded Mandates Reform Act.

A. Regulatory Benefits

    Through this regulation, the agency is establishing procedures and
requirements implementing PDMA. As discussed extensively above and in
the preamble of the proposed rule, the requirements in the final rule
will, consistent with Congress' intent in enacting PDMA, help to
prevent the sale of subpotent, adulterated, counterfeit, or misbranded
prescription drugs and drug samples to the American public. For
example, the final rule establishes procedural and recordkeeping
requirements for drug sample distribution that will help to prevent the
diversion and sale of drug samples. The final rule also establishes
wholesale distribution requirements that will permit the distribution
chain of prescription drugs to be traced, and will make unauthorized
wholesale distributors more accountable. In sum, the final rule
establishes controls over the distribution of prescription drugs and
drug samples that will help to ensure that drugs are safe and effective
not only when they leave manufacturers, but when they reach consumers.

B. Regulatory Costs

    FDA estimates that the incremental costs that will result from the
issuance of this rule will amount to about $43 million annually.
Moreover, industry will continue to incur an estimated $39 million in
annual costs for those activities initiated shortly after PDMA was
enacted into law by Congress 10 years ago. Thus, the total cost of PDMA
and this implementing rule is approximately $82 million. Almost all of
the costs are associated with sample distribution, and most are related
to paperwork requirements.
1. Cost of Sample Distribution Requirements
    a. Paperwork costs. The paperwork section of this preamble shows
the hourly reporting and recordkeeping burden estimates for all of the
sample distribution requirements, including the following: Request and
receipt forms, license verification, inventory of representatives,
notification of FDA and investigation of losses and falsified
information, representative lists and sample storage sites,
representative conviction reports, written policies, assignment of
individuals responsible for sample information, donation records, and
inventory records and reconciliation reports. These costs will be
shared by those manufacturers, distributors, and charities subject to
the above requirements. These individuals should already possess the
necessary professional skills to comply with these paperwork
requirements. To determine the paperwork costs for the sample
distribution requirements, FDA assumed that sales representatives would
complete the majority of the request and receipt forms. In the case of
sample distribution by mail or common carrier, the agency assumed that
an administrator in the practitioner's office would complete the
request and receipt forms. Also, the agency believes that an individual
in the office would be authorized to sign the receipt forms for the
practitioner. Using 1995 hourly earnings of approximately $24\4\
(including 40 percent for benefits) for sales representatives and
executive, administrative, and managerial positions, the estimated
total annual paperwork costs for the sample distribution requirements
are $79 million. Approximately $36 million of these costs have been
incurred annually since PDMA's enactment. The remaining $43 million are
sample paperwork costs that will go into effect as a result of this
regulation. These additional costs include: $22.6 million for receipt
recordkeeping, $2.6 million for license verification, $2.1 million for
establishing written policies and

[[Page 67752]]

procedures for sample distribution, and $15.6 million for the lot or
control number requirements.
---------------------------------------------------------------------------

    \4\ Employment and Earnings, U.S. Department of Labor, Bureau of
Labor Statistics, January 1996, pp. 205 and 206.
---------------------------------------------------------------------------

    b. Other request and receipt form costs. Sample request and receipt
forms are required under PDMA for samples delivered by mail or common
carrier. Under the final rule, FDA is also requiring receipt forms to
be used when samples are delivered by representatives. To minimize
printing and storage costs, FDA believes companies will primarily use
one combination request and receipt form for samples delivered by
representatives and separate request and receipt forms for mail
delivery. Therefore, a total of three forms will be used, one of which
will be new with this rule. The agency estimates that the development
and approval of each form may take approximately 2 hours of an
administrator's time. Taking into consideration the 2,208 manufacturers
and distributors who distribute samples (691 manufacturers of
pharmaceutical preparations\5\ plus 25 percent of the 6,069
establishments of wholesale distributors of drugs, drug properties, and
druggists' sundries\6\), the total one-time cost of developing these
forms is approximately $318,000 (2 hours x 3 forms x 2,208 x $24). Of
this amount, the one-time cost of developing the additional form
attributable to this regulation is approximately $106,000 (2 hours x 1
form x 2,208 x $24).
---------------------------------------------------------------------------

    \5\ ``Drugs Industry Series,'' 1992 Census of Manufacturers,
U.S. Department of Commerce, Economics and Statistics
Administration, Bureau of the Census, Table 4, pp. 28C to 12.
    \6\ ``United States,'' 1992 Census of Wholesale Trade, U.S.
Department of Commerce, Economics and Statistics Administration,
Bureau of the Census, Table 1, pp. US to 11.
---------------------------------------------------------------------------

    Manufacturers and distributors also incur annual printing costs
associated with the distribution of these forms. After evaluating
several printing estimates, the agency selected $0.025 per page as a
reasonable printing cost. Based on the paperwork estimates of
approximately 32.5 million request and receipt forms for delivery by
representatives\7\ and 750,000 receipt forms for mail-delivery (20
percent of 309,807 offices and clinics of doctors of medicine and
dentists\8\ x 12 per year), the agency estimates that manufacturers and
distributors incur printing costs of approximately $831,00 annually
((32.5 million + 750,000) x 0.025). FDA does not include any printing
costs for mail-requests, assuming that a paper exchange already
occurred in the marketplace for this purpose. In addition, the agency
believes that, in most cases, manufacturers and distributors will
combine the receipt and request forms when samples are delivered by a
representative. Therefore, none of the above printing costs are new to
this regulation.
---------------------------------------------------------------------------

    \7\ Data from IMS, 1996, as presented to FDA on May 27, 1997.
Data included an estimated 18.1 million office calls, 8.1 million
service calls, and 6.3 million hospital calls made in 1996.
    \8\ ``Establishment and Firm Size,'' 1992 Census of Service
Industries, U.S. Department of Commerce, Economics and Statistics
Administration, Bureau of the Census, Tables 1a and 1b, pp. 1 to 38
and pp. 1 to 51.
---------------------------------------------------------------------------

    c. Other license verification costs. The final rule will require
manufacturers and authorized distributors of record to verify with the
State that the practitioner to whom samples are distributed is licensed
or authorized by law to prescribe the drug product. To evaluate the
cost of compliance with this requirement, the agency spoke with a
representative of the Board of Physician Quality Assurance in Maryland.
FDA found that it costs approximately $500 to purchase a list of all
active practitioners with a license in the State of Maryland. Due to
the high cumulative cost for each manufacturer to purchase a list from
every State (or from as many States as their distribution reaches),
provide it to their distributors, and update it on a regular basis, it
is likely that market forces will establish a more efficient process.
For example, a third party could easily purchase the information and
sell it to manufacturers. Considering the costs for third parties to
purchase, manipulate, and disseminate this information, the agency
believes that $500 to $1,000 would be a reasonable price range for
charges by third parties to manufacturers for nationwide data. For the
purpose of this analysis, FDA assumes that each of the 691
manufacturers\9\ would pay an average of $750 each year, yielding total
annual costs of approximately $518,000 to meet the license verification
requirement. The agency does not calculate any costs for manufacturers
to disseminate this information, but instead assumes that the license
numbers would be added to the list of physicians that is currently
provided to sales representatives on a yearly basis.
---------------------------------------------------------------------------

    \9\ ``Drugs Industry Series,'' Table 4, pp. 28C to 12.
---------------------------------------------------------------------------

    d. Other sample distribution requirements. The other requirements
of the rule entailed negligible costs, were already part of industry
practice, or were attributable to the overall cost of doing business.
For example, FDA assumes all charities that receive samples have a
licensed practitioner on staff and that the cost of examining drug
sample packaging is negligible. The final rule also permits the
inventory of samples held by sales representatives to be conducted by
the representatives themselves. Therefore, no travel expenses will be
incurred for this purpose. The agency also assumes that most
manufacturers and distributors and their representatives are currently
following proper storage and handling requirements to prevent the
distribution of adulterated samples. In addition, the agency believes
that it is already part of company policy for manufacturers and
distributors to investigate significant losses and known thefts of
samples and common practice to label sample units so they may be
tracked in recall situations.
2. Nonsample-Related Costs
    To determine the costs associated with the nonsample-related
requirements, the agency multiplied the $24 hourly rate\10\ for sales
representatives and executive, administrative, and managerial positions
by the burden hours estimated under the paperwork section of this
preamble. These annual paperwork costs are grouped into the following
categories: Reimportation, sales restrictions, and wholesale
distribution. To calculate reimportation costs, the agency used the
salary data for executive and managerial positions. As few requests for
emergency reimportation are expected, the annual paperwork costs for
all reimporters to fill out the emergency reimportation application
total only $144. The annual cost of the credit memo and storage
documentation required under ``Sales Restrictions'' is shared by
hospitals, healthcare entities, and charities, and is estimated at $1.3
million. Wholesale distribution requirements, including the drug origin
statement and distributor list, are estimated to impose recordkeeping
costs of $258,000 per year on manufacturers and distributors. All of
the previous costs were initiated by the enactment of PDMA and will not
be significantly affected by the issuance of this rule.
---------------------------------------------------------------------------

    \10\ Employment and Earnings, pp. 205 and 206.
---------------------------------------------------------------------------

3. Storage Costs for Sample and Nonsample-Related Requirements
    The final rule requires that manufacturers and/or distributors
retain records for at least 3 years, including the following documents:
Drug return memos, request and receipt forms, drug sample inventory
records and reconciliation reports, representative lists, and drug
origin statements. In 1995, the average expected annual rent for space
in commercial buildings equaled $9.43 per square foot.\11\ For

[[Page 67753]]

each of the first 3 years, the agency estimates that an additional 5
square feet of storage space per affected manufacturer and distributor
will be needed to accommodate the record retention requirements. After
the third year, each subsequent year's records can replace the most
previous year's, indicating that no more than 15 square feet of storage
space will be necessary. FDA estimates that up to approximately 2,500
manufacturers and distributors will be affected; therefore, average
annual storage costs will amount to approximately $118,000 in year 1,
$236,000 in year 2, and $354,000 in each year thereafter. Though
retention of drug return memos is also required of hospitals and
charities, the agency believes these costs are negligible. Some of
these storage requirements were initiated by PDMA, but other storage
requirements have been added by this regulation. The agency did not
separate these storage costs for the purpose of this analysis.
---------------------------------------------------------------------------

    \11\ Dodge, F. W., Dodge Construction Potentials, McGraw-Hill,
Inc., 1996.
---------------------------------------------------------------------------

C. Small Business Analysis

    The agency has analyzed this rule in accordance with the Regulatory
Flexibility Act to determine its effect on small entities.
1. Need for and Objectives of the Rule
    As stated previously, PDMA was enacted by Congress to prevent the
sale of subpotent, adulterated, counterfeit, or misbranded drugs.
Through this regulation, the agency is establishing the procedures and
requirements to implement PDMA. The final rule facilitates the goals of
PDMA by establishing procedural and recordkeeping requirements for drug
sample distribution that will help to prevent the diversion and sale of
drug samples. In addition, the final rule establishes wholesale
distribution requirements that will permit the distribution chain of
prescription drugs to be traced, and will make unauthorized wholesale
distributors more accountable.
2. Description and Estimate of the Number of Small Entities
    According to the Small Business Administration (SBA), distributors
of drugs, drug proprietaries, and druggists' sundries with 100 or fewer
employees or manufacturers of pharmaceutical preparations with 750 or
fewer employees are considered small entities. The U.S. Census does not
disclose data on the number of drug manufacturing firms by employment
size, but between 92 percent and 96 percent of drug manufacturing
establishments, or approximately 650 establishments, are small under
this definition.\12\ Although the number of firms that are small would
be less than the number of establishments mentioned above, FDA still
concludes that the majority of pharmaceutical preparation manufacturing
firms are small entities. In addition, the agency found that 94 percent
of the distribution firms, or approximately 4,000 firms, are small.\13\
However, as stated previously, the agency believes that the majority of
these do not distribute samples, and thus will not be affected by the
rule. According to SBA's definition, general medical and surgical
hospitals, and the offices and clinics of dentists and doctors of
medicine that are either not-for-profit or have $5 million or less in
revenue are also considered small. Using this definition, FDA
determined that approximately 96 percent of the hospitals (or
approximately 4,000 hospitals)\14\ and 99 percent of the offices and
clinics (or approximately 268,000 offices and clinics)\15\ are small.
In addition, due to their nonprofit status, the agency assumes that the
3,112 charities expected to be affected by this rule (based on a
portion of not-for-profit hospitals,\16\ doctors' offices, and
clinics\17\) would be considered small by SBA. As noted in the
paperwork section of this regulation, FDA believes that approximately
12 importers will be affected by this rule, and assumes that the
majority of them are small.
---------------------------------------------------------------------------

    \12\ ``Drugs Industry Series,'' Table 4, pp. 28C to 12.
    \13\ ``Establishment and Firm Size,'' 1992 Census of Wholesale
Trade, U.S. Department of Commerce, Economics and Statistics
Administration, Bureau of the Census, Table 7, pp. 1 to 186.
    \14\ ``Establishment and Firm Size,'' 1992 Census of Service
Industries, Table a and 4b, pp. 1 to 174 and pp. 1 to 184.
    \15\ ``Establishment and Firm Size,'' 1992 Census of Service
Industries, Table 4a and 4b, pp. 1 to 171 and pp. 1 to 183.
    \16\ The Statistical Abstract of the United States, U.S.
Department of Commerce, Bureau of the Census, 1996, No. 187, p. 127.
    \17\ ``Establishment and Firm Size,'' 1992 Census of Service
Industries, Table 1b, pp. 1 to 51.
---------------------------------------------------------------------------

    The agency notes that the great majority of the costs of this rule
will be incurred by the manufacturers and distributors that distribute
drug samples. The costs will not be evenly distributed, but directly
related to the size of each company's sales force. According to Census
data, less than 10 percent of the manufacturing companies in the
pharmaceutical preparations industry have 90 percent of the industry's
sales.\18\ Likewise, approximately 1 percent of the firms distributing
drugs, drug proprietaries, and druggists' sundries have 74 percent of
the industry's sales.\19\ Consequently, the largest firms will incur
the majority of the drug sample-related costs of this regulation, and
the smallest firms will incur relatively few of these costs. While some
small reimporters will be affected by the reimportation restriction,
this impact will be moderated because most also import non-U.S. drugs
or other products. The cost impact on charities will be minimal.
---------------------------------------------------------------------------

    \18\ ``Concentration Ratios in Manufacturing,'' 1992 Census of
Manufacturers, U.S. Department of Commerce, Economics and Statistics
Administration, Bureau of the Census, Table 3.
    \19\ ``Establishment and Firm Size,'' 1992 Census of Wholesale
Trade, Tables 7 and 8, pp. 1 to 186 and pp. 1 to 218.
---------------------------------------------------------------------------

3. Estimate of the Recordkeeping Burden
    The majority of the costs of this regulation are derived from the
paperwork requirements. The manufacturers, distributors, and charities
involved in the sample distribution process are required to comply with
the recordkeeping requirements specified earlier in this analysis.
These individuals should already possess the necessary skills to
establish written policies and procedures, complete forms and
applications, and prepare the required documentation. The paperwork
specified by this rule does not require any special professional
training or skills to complete and would be of a type already being
handled by regulatory affairs professionals who are employed by drug
manufacturers and distributors.
4. Analysis of Alternatives
    FDA could have implemented the rule as proposed, but instead, the
agency took several steps to minimize the economic impact on small
entities. Specifically, the agency reduced or eliminated several of the
requirements under the proposed rule. Examples of this can be found
under the requirements for sample inventory, lot or control numbers,
sample unit identification, and sample record retention. Under the
proposal, the inventory of drug samples held by sales representatives
would be conducted by an executive other than the representative or the
immediate supervisor. Comments emphasized the costliness of this
requirement, indicating it was time consuming and entailed travel
expenses to regional sales offices. In response to these comments, the
final rule allows sales representatives and their supervisory personnel
to conduct the inventory and reconciliation functions. Also, in
response to comments on the proposal, FDA reduced the administrative
burden

[[Page 67754]]

associated with the donation of prescription drug samples to charity.
Furthermore, FDA found it unnecessarily burdensome to require that lot
or control numbers appear on drug sample records, receipts, and
reconciliation reports, as proposed. Therefore, the final rule adds
flexibility by allowing the recording of lot or control numbers on
other types of records. Also, in response to comments, the agency is
allowing the use of adhesive stickers on retail units to designate a
sample unit as a sample. The final rule reduces the drug sample record
retention period, which was proposed as 3 years from the sample
expiration date. The agency decided that retention of drug sample
records for 3 years from the date of their creation is sufficient for
recall facilitation and proper accountability over sample distribution.
    The agency considered minimizing the impact of this rule by not
requiring manufacturers and authorized distributors to verify with the
State that the practitioner to whom samples are distributed is licensed
or authorized by law to prescribe the drug product. However, under the
final rule, this license verification requirement was added in response
to comments. The cost of this requirement is estimated at approximately
$3.2 million per year. The agency determined that this requirement is
the only reliable way of proving that the practitioner requesting
samples is actually licensed by a State to prescribe drugs. The agency
does not believe that allowing a manufacturer to deem acceptable a
license or authorization number on a request form without verifying its
authenticity would offer any such assurance.
    The agency considered eliminating the receipt requirement for
representative-delivered samples. This would reduce the cost of the
final regulation by approximately $22.6 million per year. However,
although Congress did not expressly require a receipt for
representative-delivered samples, FDA concluded that this requirement
is necessary to help ensure effective enforcement, increased
accountability and oversight of sample distribution, and to provide
adequate safeguards against drug sample diversion.
5. Response to Comments
    Several of the comments indicated that the initial economic
analysis understated the impact of the proposed rule. FDA reevaluated
and significantly increased the paperwork estimates to more accurately
reflect industry's implementation of this final regulation. For
example, the agency increased the estimated time for a manufacturer to
conduct an annual inventory and complete a reconciliation report from
30 minutes to 40 hours per manufacturer. The agency also increased the
amount of time estimated to generate a sample receipt from 1 minute to
3 and 5 minutes for distribution by mail and representative
respectively, and the estimated time to investigate possible
significant loss or theft of samples from 1 hour to 24 hours. In
addition, the agency identified and estimated the burden associated
with requirements other than recordkeeping that were not quantified
under the proposed rule. For example, FDA allotted 2 hours for the
development of each of the sample request and receipt forms. The annual
printing costs associated with these forms have also been assessed.
Storage costs have been added as necessitated by the paperwork
requirements of this regulation.

D. Conclusion

    FDA calculated both the incremental costs of this final rule and
the costs initially imposed upon the enactment of PDMA, and determined
that there are one-time costs of $318,000 for developing forms, and
total annual costs of approximately $82 million. Approximately $39
million of these annual costs have been incurred by industry since the
enactment of PDMA by Congress in 1988. An estimated additional $43
million per year will result from the new requirements in this
regulation. This rule is not a significant regulatory action as defined
by the Executive Order, and is therefore not subject to review under
the Executive Order. This rule does not impose any mandates on State,
local, or tribal governments, nor is it a significant regulatory action
under the Unfunded Mandates Reform Act. Finally, the agency has
analyzed this rule in accordance with the Regulatory Flexibility Act
and provided each of the elements required for a final regulatory
flexibility analysis.

V. Executive Order 13132: Federalism

    FDA has analyzed this final rule in accordance with Executive Order
13132: Federalism. Executive Order 13132 requires Federal agencies to
carefully examine actions to determine if they contain policies that
have federalism implications or that preempt State law. As defined in
the Order, ``policies that have federalism implications'' refers to
regulations, legislative comments or proposed legislation, and other
policy statements or actions 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.
    FDA is publishing this final rule to set forth agency policies and
requirements and provide administrative procedures, information, and
guidance for those sections of PDMA that are not related to State
licensing of wholesale prescription drug distributors. Because
enforcement of these sections of PDMA is a Federal responsibility,
there should be little, if any, impact from this rule 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. In addition, this regulation does not preempt State law.
    Accordingly, FDA has determined that this final rule does not
contain policies that have federalism implications or that preempt
State law.

VI. Paperwork Reduction Act of 1995

    This final 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. 3501-3520). The title,
description, and respondent description of the information collection
provisions are shown below with an estimate of the annual reporting and
recordkeeping 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.
    Title: Prescription Drug Marketing Act of 1987; Policies,
Requirements, and Administrative Procedures.
    Description: The final rule provides for the collection of
information from establishments engaged in the reimportation and
wholesale distribution of prescription drugs; the sale, purchase, or
trade of (or offer to sell, purchase, or trade) prescription drugs by
hospitals, health care entities, and charitable institutions; the
distribution of prescription drug samples; and the wholesale
distribution of prescription drugs.
    Description of Respondents: Businesses, hospitals, health care
entities, charitable institutions, and other for-profit and not-for-
profit organizations; small businesses or organizations.
    Although the March 1994 proposal provided a 60-day comment period
under the Paperwork Reduction Act of 1980, and this final rule responds
to the comments received, FDA is providing

[[Page 67755]]

an additional opportunity for public comment under the Paperwork
Reduction Act of 1995, which became effective after the expiration of
the comment period and applies to this final rule. Therefore, FDA now
invites comments on: (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. Individuals and organizations may submit
comments on the information collection provisions of this final rule by
February 1, 2000. Comments should be directed to the Dockets Management
Branch (address above).
    At the close of the 60-day comment period, FDA will review the
comments received, revise the information collection provisions as
necessary, and submit these provisions to OMB for review. FDA will
publish a notice in the Federal Register when the information
collection provisions are submitted to OMB, and an opportunity for
public comment to OMB will be provided at that time. Prior to the
effective date of this final rule, FDA will publish a notice in the
Federal Register of OMB's decision to approve, modify, or disapprove
the information collection provisions. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless it displays a currently valid OMB control number.

                                 Table 1.--Estimated Annual Reporting Burden\1\
----------------------------------------------------------------------------------------------------------------
                                          Annual
   21 CFR Section         No. of       Frequency per      Total Annual         Hours per         Total Hours
                        Respondents      Response           Responses          Response
----------------------------------------------------------------------------------------------------------------
203.11                     12               1                  12                  .5                 6
203.30(a)(1) and (b)   61,961              12             743,532                  .06           44,612
203.30(a)(3),          61,961              12             743,532                  .06           44,612
 (a)(4), and (c)
203.31(a)(1) and (b)  232,355             135          31,367,925                  .04        1,254,717
203.31(a)(3),         232,355             135          31,367,925                  .03          941,038
 (a)(4), and (c)
203.37(a)                  25               1                  25                 6.00              150
203.37(b)                 200               1                 200                 6.00            1,200
203.37(c)                  50               1                  50                 1.00               50
203.37(d)               2,208               1               2,208                  .08              177
203.38(a)               2,208               1               2,208                 3.00            6,624
203.39(g)               3,221               1               3,221                 2.00            6,442
203.50(a)                 125             100              12,500                  .08            1,000
Total Hours                                                                                   2,300,628
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.

                               Table 2.--Estimated Annual Recordkeeping Burden\1\
----------------------------------------------------------------------------------------------------------------
                                          Annual
   21 CFR Section         No. of       Frequency per  Total Annual Records     Hours per         Total Hours
                       Recordkeepers   Recordkeeping                         Recordkeeper
----------------------------------------------------------------------------------------------------------------
203.23(a) and (b)      31,676               5             158,380                  .25           39,595
203.23(c)              31,676               5             158,380                  .08           12,670
203.30(a)(2) and        2,208             100             220,800                  .50          110,400
 203.31(a)(2)
203.31(d)(1) and        2,208               1               2,208                40.00           88,320
 (d)(2)
203.31(d)(4)              442               1                 442                24.00           10,608
203.31(e)               2,208               1               2,208                 1.00            2,208
203.34                  2,208               1               2,208                40.00           88,320
203.37(a)                  25               1                  25                18.00              450
203.37(b)                 200               1                 200                18.00            3,600
203.38(b)               2,208          14,543          32,111,457                  .02          642,229
203.39(d)                  65               1                  65                 1.00               65
203.39(e)               3,221               1               3,221                  .50            1,610
203.39(f)               3,221               1               3,221                 8.00           25,768
203.39(g)               3,221               1               3,221                 8.00           25,768
203.50(a)                 125             100              12,500                  .17            2,125
203.50(b)                 125             100              12,500                  .50            6,250
203.50(d)                 691               1                 691                 2.00            1,382
Total Hours                                                                                   1,061,368
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.

    Section 203.38(c) is exempt from recordkeeping requirements because
the information it requires to be placed on drug sample labeling is
provided by the agency.

VII. Environmental Impact

    The agency has determined under 21 CFR 25.30(h) that this action is
of a class of actions that do not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.

[[Page 67756]]

List of Subjects

21 CFR Part 203

    Drugs, Labeling, Manufacturing, Prescription drugs, Reporting and
recordkeeping requirements, Warehouses.

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, 21 CFR
chapter I is amended as follows:
    1. Part 203 is added to read as follows:

 PART 203--PRESCRIPTION DRUG MARKETING

 Subpart A--General Provisions

Sec.
203.1  Scope.
203.2  Purpose.
203.3  Definitions.

 Subpart B--Reimportation

203.10  Restrictions on reimportation.
203.11  Applications for reimportation to provide emergency medical
care.
203.12  An appeal from an adverse decision by the district office.

Subpart C--Sales Restrictions

203.20  Sales restrictions.
203.22  Exclusions.
203.23  Returns.

 Subpart D--Samples

203.30  Sample distribution by mail or common carrier.
203.31  Sample distribution by means other than mail or common
carrier (direct delivery by a representative or detailer).
203.32  Drug sample storage and handling requirements.
203.33  Drug sample forms.
203.34  Policies and procedures; administrative systems.
203.35  Standing requests.
203.36  Fulfillment houses, shipping and mailing services,
comarketing agreements, and third-party recordkeeping.
203.37  Investigation and notification requirements.
203.38  Sample lot or control numbers; labeling of sample units.
203.39  Donation of drug samples to charitable institutions.

Subpart E--Wholesale Distribution

203.50  Requirements for wholesale distribution of prescription
drugs.

Subpart F--Request and Receipt Forms, Reports, and Records

203.60  Request and receipt forms, reports, and records.

Subpart G--Rewards

203.70  Application for a reward.
     Authority:  21 U.S.C. 331, 333, 351, 352, 353, 360, 371, 374,
381.

Subpart A--General Provisions

Sec. 203.1   Scope.

    This part sets forth procedures and requirements pertaining to the
reimportation and wholesale distribution of prescription drugs,
including both bulk drug substances and finished dosage forms; the
sale, purchase, or trade of (or the offer to sell, purchase, or trade)
prescription drugs, including bulk drug substances, that were purchased
by hospitals or health care entities, or donated to charitable
organizations; and the distribution of prescription drug samples. Blood
and blood components intended for transfusion are excluded from the
restrictions in and the requirements of the Prescription Drug Marketing
Act of 1987 and the Prescription Drug Amendments of 1992.

Sec. 203.2   Purpose.

    The purpose of this part is to implement the Prescription Drug
Marketing Act of 1987 and the Prescription Drug Amendments of 1992,
except for those sections relating to State licensing of wholesale
distributors (see part 205 of this chapter), to protect the public
health, and to protect the public against drug diversion by
establishing procedures, requirements, and minimum standards for the
distribution of prescription drugs and prescription drug samples.

Sec. 203.3   Definitions.

    (a) The act means the Federal Food, Drug, and Cosmetic Act, as
amended (21 U.S.C. 301 et seq.).
    (b) Authorized distributor of record means a distributor with whom
a manufacturer has established an ongoing relationship to distribute
such manufacturer's products.
    (c) Blood means whole blood collected from a single donor and
processed either for transfusion or further manufacturing.
    (d) Blood component means that part of a single-donor unit of blood
separated by physical or mechanical means.
    (e) 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, but the term does not include intermediates used in
the synthesis of such substances.
    (f) Charitable institution or charitable organization means a
nonprofit hospital, health care entity, organization, institution,
foundation, association, or corporation that has been granted an
exemption under section 501(c)(3) of the Internal Revenue Code of 1954,
as amended.
    (g)  Common control means the power to direct or cause the
direction of the management and policies of a person or an
organization, whether by ownership of stock, voting rights, by
contract, or otherwise.
    (h)  Distribute means to sell, offer to sell, deliver, or offer to
deliver a drug to a recipient, except that the term ``distribute'' does
not include:
    (1) Delivering or offering to deliver a drug by a common carrier in
the usual course of business as a common carrier; or
    (2) Providing of a drug sample to a patient by:
    (i) A practitioner licensed to prescribe such drug;
    (ii) A health care professional acting at the direction and under
the supervision of such a practitioner; or
    (iii) The pharmacy of a hospital or of another health care entity
that is acting at the direction of such a practitioner and that
received such sample in accordance with the act and regulations.
    (i)  Drug sample means a unit of a prescription drug that is not
intended to be sold and is intended to promote the sale of the drug.
    (j) Drug coupon means a form that may be redeemed, at no cost or at
reduced cost, for a drug that is prescribed in accordance with section
503(b) of the act.
    (k) Electronic record means any combination of text, graphics,
data, audio, pictorial, or other information representation in digital
form that is created, modified, maintained, archived, retrieved, or
distributed by a computer system.
    (l) Electronic signature means any computer data compilation of any
symbol or series of symbols executed, adopted, or authorized by an
individual to be the legally binding equivalent of the individual's
handwritten signature.
    (m) Emergency medical reasons include, but are not limited to,
transfers of a prescription drug between health care entities or from a
health care entity to a retail pharmacy to alleviate a temporary
shortage of a prescription

[[Page 67757]]

drug arising from delays in or interruption of regular distribution
schedules; sales to nearby emergency medical services, i.e., ambulance
companies and fire fighting organizations in the same State or same
marketing or service area, or nearby licensed practitioners, of drugs
for use in the treatment of acutely ill or injured persons; provision
of minimal emergency supplies of drugs to nearby nursing homes for use
in emergencies or during hours of the day when necessary drugs cannot
be obtained; and transfers of prescription drugs by a retail pharmacy
to another retail pharmacy to alleviate a temporary shortage; but do
not include regular and systematic sales to licensed practitioners of
prescription drugs that will be used for routine office procedures.
    (n) FDA means the U.S. Food and Drug Administration.
    (o)  Group purchasing organization means any entity established,
maintained, and operated for the purchase of prescription drugs for
distribution exclusively to its members with such membership consisting
solely of hospitals and health care entities bound by written contract
with the entity.
    (p)  Handwritten signature means the scripted name or legal mark of
an individual handwritten by that individual and executed or adopted
with the present intention to authenticate a writing in a permanent
form. The act of signing with a writing or marking instrument such as a
pen or stylus is preserved. The scripted name or legal mark, while
conventionally applied to paper, may also be applied to other devices
that capture the name or mark.
    (q) Health care entity  means any person that provides diagnostic,
medical, surgical, or dental treatment, or chronic or rehabilitative
care, but does not include any retail pharmacy or any wholesale
distributor. A person cannot simultaneously be a ``health care entity''
and a retail pharmacy or wholesale distributor.
    (r) Licensed practitioner means any person licensed or authorized
by State law to prescribe drugs.
    (s) Manufacturer means any person who is a manufacturer as defined
by Sec. 201.1 of this chapter.
    (t)  Nonprofit affiliate means any not-for-profit organization that
is either associated with or a subsidiary of a charitable organization
as defined in section 501(c)(3) of the Internal Revenue Code of 1954.
    (u) Ongoing relationship means an association that exists when a
manufacturer and a distributor enter into a written agreement under
which the distributor is authorized to distribute the manufacturer's
products for a period of time or for a number of shipments. If the
distributor is not authorized to distribute a manufacturer's entire
product line, the agreement must identify the specific drug products
that the distributor is authorized to distribute.
    (v)  PDA means the Prescription Drug Amendments of 1992.
    (w) PDMA means the Prescription Drug Marketing Act of 1987.
    (x) Person includes any individual, partnership, corporation, or
association.
    (y) Prescription drug means any drug (including any biological
product, except for blood and blood components intended for transfusion
or biological products that are also medical devices) required by
Federal law (including Federal regulation) to be dispensed only by a
prescription, including finished dosage forms and bulk drug substances
subject to section 503(b) of the act.
    (z)  Representative means an employee or agent of a drug
manufacturer or distributor who promotes the sale of prescription drugs
to licensed practitioners and who may solicit or receive written
requests for the delivery of drug samples. A detailer is a
representative.
    (aa) Sample unit means a packet, card, blister pack, bottle,
container, or other single package comprised of one or more dosage
units of a prescription drug sample, intended by the manufacturer or
distributor to be provided by a licensed practitioner to a patient in
an unbroken or unopened condition.
    (bb) Unauthorized distributor means a distributor who does not have
an ongoing relationship with a manufacturer to sell or distribute its
products.
    (cc)  Wholesale distribution means distribution of prescription
drugs to persons other than a consumer or patient, but does not
include:
    (1) Intracompany sales;
    (2) The purchase or other acquisition by a hospital or other health
care entity that is a member of a group purchasing organization of a
drug for its own use from the group purchasing organization or from
other hospitals or health care entities that are members of such
organizations;
    (3) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug by a charitable organization to a nonprofit
affiliate of the organization to the extent otherwise permitted by law;
    (4) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug among hospitals or other health care entities
that are under common control;
    (5) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug for emergency medical reasons;
    (6) The sale, purchase, or trade of a drug, an offer to sell,
purchase, or trade a drug, or the dispensing of a drug under a
prescription executed in accordance with section 503(b) of the act;
    (7) The distribution of drug samples by manufacturers' and
authorized distributors' representatives;
    (8) The sale, purchase, or trade of blood or blood components
intended for transfusion;
    (9) Drug returns, when conducted by a hospital, health care entity,
or charitable institution in accordance with Sec. 203.23; or
    (10) The sale of minimal quantities of drugs by retail pharmacies
to licensed practitioners for office use.
    (dd)  Wholesale distributor means any person engaged in wholesale
distribution of prescription drugs, including, but not limited to,
manufacturers; repackers; own-label distributors; private-label
distributors; jobbers; brokers; warehouses, including manufacturers'
and distributors' warehouses, chain drug warehouses, and wholesale drug
warehouses; independent wholesale drug traders; and retail pharmacies
that conduct wholesale distributions.

Subpart B--Reimportation

Sec. 203.10   Restrictions on reimportation.

    No prescription drug or drug composed wholly or partly of insulin
that was manufactured in a State and exported from the United States
may be reimported by anyone other than its manufacturer, except that
FDA may grant permission to a person other than the manufacturer to
reimport a prescription drug or insulin-containing drug if it
determines that such reimportation is required for emergency medical
care.

Sec. 203.11   Applications for reimportation to provide emergency
medical care.

    (a) Applications for reimportation for emergency medical care shall
be submitted to the director of the FDA District Office in the district
where reimportation is sought (addresses found in Sec. 5.115 of this
chapter).
    (b) Applications for reimportation to provide emergency medical
care shall be reviewed and approved or disapproved by each district
office.

[[Page 67758]]

Sec. 203.12   An appeal from an adverse decision by the district
office.

    An appeal from an adverse decision by the district office involving
insulin-containing drugs or prescription human drugs, other than
biological products, may be made to the Office of Compliance (HFD-300),
Center for Drug Evaluation and Research, Food and Drug Administration,
7520 Standish Pl., Rockville, MD 20855. An appeal from an adverse
decision by the district office involving prescription human biological
products may be made to the Office of Compliance and Biologics Quality
(HFM-600), Center for Biologics Evaluation and Research, Food and Drug
Administration, 1401 Rockville Pike, Rockville, MD 20852.

Subpart C--Sales Restrictions

Sec. 203.20   Sales restrictions.

    Except as provided in Sec. 203.22 or Sec. 203.23, no person may
sell, purchase, or trade, or offer to sell, purchase, or trade any
prescription drug that was:
    (a) Purchased by a public or private hospital or other health care
entity; or
    (b) Donated or supplied at a reduced price to a charitable
organization.

Sec. 203.22   Exclusions.

    Section 203.20 does not apply to:
    (a) The purchase or other acquisition of a drug for its own use by
a hospital or other health care entity that is a member of a group
purchasing organization from the group purchasing organization or from
other hospitals or health care entities that are members of the
organization.
    (b) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug by a charitable organization to a nonprofit
affiliate of the organization to the extent otherwise permitted by law.
    (c) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug among hospitals or other health care entities
that are under common control.
    (d) The sale, purchase, or trade of a drug or an offer to sell,
purchase, or trade a drug for emergency medical reasons.
    (e) The sale, purchase, or trade of a drug, an offer to sell,
purchase, or trade a drug, or the dispensing of a drug under a valid
prescription.
    (f) The sale, purchase, or trade of a drug or the offer to sell,
purchase, or trade a drug by hospitals or health care entities owned or
operated by Federal, State, or local governmental units to other
hospitals or health care entities owned or operated by Federal, State,
or local governmental units.
    (g) The sale, purchase, or trade of, or the offer to sell,
purchase, or trade blood or blood components intended for transfusion.

Sec. 203.23   Returns.

    The return of a prescription drug purchased by a hospital or health
care entity or acquired at a reduced price by or donated to a
charitable institution is exempt from the prohibitions in Sec. 203.20,
provided that:
    (a) The hospital, health care entity, or charitable institution
documents the return by filling out a credit memo specifying:
    (1) The name and address of the hospital, health care entity, or
charitable institution;
    (2) The name and address of the manufacturer or wholesale
distributor from which it was acquired;
    (3) The product name and lot or control number;
    (4) The quantity returned; and
    (5) The date of the return.
    (b) The hospital, health care entity, or charitable institution
forwards a copy of each credit memo to the manufacturer and retains a
copy of each credit memo for its records;
    (c) Any drugs returned to a manufacturer or wholesale distributor
are kept under proper conditions for storage, handling, and shipping,
and written documentation showing that proper conditions were
maintained is provided to the manufacturer or wholesale distributor to
which the drugs are returned.

Subpart D--Samples

Sec. 203.30   Sample distribution by mail or common carrier.

    (a)  Requirements for drug sample distribution by mail or common
carrier. A manufacturer or authorized distributor of record may
distribute a drug sample to a practitioner licensed to prescribe the
drug that is to be sampled or, at the written request of a licensed
practitioner, to the pharmacy of a hospital or other health care
entity, by mail or common carrier, provided that:
    (1) The licensed practitioner executes and submits a written
request to the manufacturer or authorized distributor of record, as set
forth in paragraph (b) of this section, before the delivery of the drug
sample;
    (2) The manufacturer or authorized distributor of record verifies
with the appropriate State authority that the practitioner requesting
the drug sample is licensed or authorized under State law to prescribe
the drug product;
    (3) The recipient executes a written receipt, as set forth in
paragraph (c) of this section, when the drug sample is delivered; and
    (4) The receipt is returned to the manufacturer or distributor from
which the drug sample was received.
    (b)  Contents of the written request form for delivery of samples
by mail or common carrier.
    (1) A written request for a drug sample to be delivered by mail or
common carrier to a licensed practitioner is required to contain the
following:
    (i) The name, address, professional title, and signature of the
practitioner making the request;
    (ii) The practitioner's State license or authorization number or,
where a scheduled drug product is requested, the practitioner's Drug
Enforcement Administration number.
    (iii) The proprietary or established name and the strength of the
drug sample requested;
    (iv) The quantity requested;
    (v) The name of the manufacturer and the authorized distributor of
record, if the drug sample is requested from an authorized distributor
of record; and
    (vi) The date of the request.
    (2) A written request for a drug sample to be delivered by mail or
common carrier to the pharmacy of a hospital or other health care
entity is required to contain, in addition to all of the information in
paragraph (b)(l) of this section, the name and address of the pharmacy
of the hospital or other health care entity to which the drug sample is
to be delivered.
    (c)  Contents of the receipt to be completed upon delivery of a
drug sample. The receipt is to be on a form designated by the
manufacturer or distributor, and is required to contain the following:
    (1) If the drug sample is delivered to the licensed practitioner
who requested it, the receipt is required to contain the name, address,
professional title, and signature of the practitioner or the
practitioner's designee who acknowledges delivery of the drug sample;
the proprietary or established name and strength of the drug sample and
the quantity of the drug sample delivered; and the date of the
delivery.
    (2) If the drug sample is delivered to the pharmacy of a hospital
or other health care entity at the request of a licensed practitioner,
the receipt is required to contain the name and address of the
requesting licensed practitioner; the name and address of the hospital
or health care entity pharmacy designated to receive the drug sample;
the name, address, professional title, and signature of the person
acknowledging delivery of the drug

[[Page 67759]]

sample; the proprietary or established name and strength of the drug
sample; the quantity of the drug sample delivered; and the date of the
delivery.

Sec. 203.31   Sample distribution by means other than mail or common
carrier (direct delivery by a representative or detailer).

    (a)  Requirements for drug sample distribution by means other than
mail or common carrier. A manufacturer or authorized distributor of
record may distribute by means other than mail or common carrier, by a
representative or detailer, a drug sample to a practitioner licensed to
prescribe the drug to be sampled or, at the written request of such a
licensed practitioner, to the pharmacy of a hospital or other health
care entity, provided that:
    (1) The manufacturer or authorized distributor of record receives
from the licensed practitioner a written request signed by the licensed
practitioner before the delivery of the drug sample;
    (2) The manufacturer or authorized distributor of record verifies
with the appropriate State authority that the practitioner requesting
the drug sample is licensed or authorized under State law to prescribe
the drug product;
    (3) A receipt is signed by the recipient, as set forth in paragraph
(c) of this section, when the drug sample is delivered;
    (4) The receipt is returned to the manufacturer or distributor; and
    (5) The requirements of paragraphs (d) through (e) of this section
are met.
    (b)  Contents of the written request forms for delivery of samples
by a representative. (1) A written request for delivery of a drug
sample by a representative to a licensed practitioner is required to
contain the following:
    (i) The name, address, professional title, and signature of the
practitioner making the request;
    (ii) The practitioner's State license or authorization number, or,
where a scheduled drug product is requested, the practitioner's Drug
Enforcement Administration number;
    (iii) The proprietary or established name and the strength of the
drug sample requested;
    (iv) The quantity requested;
    (v) The name of the manufacturer and the authorized distributor of
record, if the drug sample is requested from an authorized distributor
of record; and
    (vi) The date of the request.
    (2) A written request for delivery of a drug sample by a
representative to the pharmacy of a hospital or other health care
entity is required to contain, in addition to all of the information in
paragraph (b) of this section, the name and address of the pharmacy of
the hospital or other health care entity to which the drug sample is to
be delivered.
    (c)  Contents of the receipt to be completed upon delivery of a
drug sample. The receipt is to be on a form designated by the
manufacturer or distributor, and is required to contain the following:
    (1) If the drug sample is received at the address of the licensed
practitioner who requested it, the receipt is required to contain the
name, address, professional title, and signature of the practitioner or
the practitioner's designee who acknowledges delivery of the drug
sample; the proprietary or established name and strength of the drug
sample; the quantity of the drug sample delivered; and the date of the
delivery.
    (2) If the drug sample is received by the pharmacy of a hospital or
other health care entity at the request of a licensed practitioner, the
receipt is required to contain the name and address of the requesting
licensed practitioner; the name and address of the hospital or health
care entity pharmacy designated to receive the drug sample; the name,
address, professional title, and signature of the person acknowledging
delivery of the drug sample; the proprietary or established name and
strength of the drug sample; the quantity of the drug sample delivered;
and the date of the delivery.
    (d)  Inventory and reconciliation of drug samples of manufacturers'
and distributors' representatives. Each drug manufacturer or authorized
distributor of record that distributes drug samples by means of
representatives shall conduct, at least annually, a complete and
accurate physical inventory of all drug samples. All drug samples in
the possession or control of each manufacturer's and distributor's
representatives are required to be inventoried and the results of the
inventory are required to be recorded in an inventory record, as
specified in paragraph (d)(1) of this section. In addition,
manufacturers and distributors shall reconcile the results of the
physical inventory with the most recently completed prior physical
inventory and create a report documenting the reconciliation process,
as specified in paragraph (d)(2) of this section.
     (1) The inventory record is required to identify all drug samples
in a representative's stock by the proprietary or established name,
dosage strength, and number of units.
    (2) The reconciliation report is required to include:
    (i) The inventory record for the most recently completed prior
inventory;
    (ii) A record of each drug sample shipment received since the most
recently completed prior inventory, including the sender and date of
the shipment, and the proprietary or established name, dosage strength,
and number of sample units received;
    (iii) A record of drug sample distributions since the most recently
completed inventory showing the name and address of each recipient of
each sample unit shipped, the date of the shipment, and the proprietary
or established name, dosage strength, and number of sample units
shipped. For the purposes of this paragraph and paragraph (d)(2)(v) of
this section, ``distributions'' includes distributions to health care
practitioners or designated hospital or health care entity pharmacies,
transfers or exchanges with other firm representatives, returns to the
manufacturer or authorized distributor, destruction of drug samples by
a sales representative, and other types of drug sample dispositions.
The specific type of distribution must be specified in the record;
    (iv) A record of drug sample thefts or significant losses reported
by the representative since the most recently completed prior
inventory, including the approximate date of the occurrence and the
proprietary or established name, dosage strength, and number of sample
units stolen or lost; and
    (v) A record summarizing the information required by paragraphs
(d)(2)(ii) through (d)(2)(iv) of this section. The record must show,
for each type of sample unit (i.e., sample units having the same
established or proprietary name and dosage strength), the total number
of sample units received, distributed, lost, or stolen since the most
recently completed prior inventory. For example, a typical entry in
this record may read ``50 units risperidone (1 mg) returned to
manufacturer'' or simply ``Risperidone (1 mg)/50/returned to
manufacturer.''
    (3) Each drug manufacturer or authorized distributor of record
shall take appropriate internal control measures to guard against error
and possible fraud in the conduct of the physical inventory and
reconciliation, and in the preparation of the inventory record and
reconciliation report.
    (4) A manufacturer or authorized distributor of record shall
carefully evaluate any apparent discrepancy or significant loss
revealed through the inventory and reconciliation process and shall
fully investigate any such discrepancy or significant loss that cannot
be justified.

[[Page 67760]]

    (e) Lists of manufacturers' and distributors' representatives. Each
drug manufacturer or authorized distributor of record who distributes
drug samples by means of representatives shall maintain a list of the
names and addresses of its representatives who distribute drug samples
and of the sites where drug samples are stored.

Sec. 203.32   Drug sample storage and handling requirements.

    (a) Storage and handling conditions. Manufacturers, authorized
distributors of record, and their representatives shall store and
handle all drug samples under conditions that will maintain their
stability, integrity, and effectiveness and ensure that the drug
samples are free of contamination, deterioration, and adulteration.
    (b)  Compliance with compendial and labeling requirements.
Manufacturers, authorized distributors of record, and their
representatives can generally comply with this section by following the
compendial and labeling requirements for storage and handling of a
particular prescription drug in handling samples of that drug.

Sec. 203.33   Drug sample forms.

    A sample request or receipt form may be delivered by mail, common
carrier, or private courier or may be transmitted photographically or
electronically (i.e., by telephoto, wirephoto, radiophoto, facsimile
transmission (FAX), xerography, or electronic data transfer) or by any
other system, provided that the method for transmission meets the
security requirements set forth in Sec. 203.60(c).

Sec. 203.34   Policies and procedures; administrative systems.

    Each manufacturer or authorized distributor of record that
distributes drug samples shall establish, maintain, and adhere to
written policies and procedures describing its administrative systems
for the following:
    (a) Distributing drug samples by mail or common carrier, including
methodology for reconciliation of requests and receipts;
    (b) Distributing drug samples by means other than mail or common
carrier including the methodology for:
    (1) Reconciling requests and receipts, identifying patterns of
nonresponse, and the manufacturer's or distributor's response when such
patterns are found;
    (2) Conducting the annual physical inventory and preparation of the
reconciliation report;
    (3) Implementing a sample distribution security and audit system,
including conducting random and for-cause audits of sales
representatives by personnel independent of the sales force; and
    (4) Storage of drug samples by representatives;
    (c) Identifying any significant loss of drug samples and notifying
FDA of the loss; and
    (d) Monitoring any loss or theft of drug samples.

Sec. 203.35   Standing requests.

    Manufacturers or authorized distributors of record shall not
distribute drug samples on the basis of open-ended or standing
requests, but shall require separate written requests for each drug
sample or group of samples. An arrangement by which a licensed
practitioner requests in writing that a specified number of drug
samples be delivered over a period of not more than 6 months, with the
actual delivery dates for parts of the order to be set by subsequent
oral communication or electronic transmission, is not considered to be
a standing request.

Sec. 203.36   Fulfillment houses, shipping and mailing services,
comarketing agreements, and third-party recordkeeping.

    (a)  Responsibility for creating and maintaining forms, reports,
and records. Any manufacturer or authorized distributor of record that
uses a fulfillment house, shipping or mailing service, or other third
party, or engages in a comarketing agreement with another manufacturer
or distributor to distribute drug samples or to meet any of the
requirements of PDMA, PDA, or this part, remains responsible for
creating and maintaining all requests, receipts, forms, reports, and
records required under PDMA, PDA, and this part.
    (b) Responsibility for producing requested forms, reports, or
records. A manufacturer or authorized distributor of record that
contracts with a third party to maintain some or all of its records
shall produce requested forms, reports, records, or other required
documents within 2 business days of a request by an authorized
representative of FDA or another Federal, State, or local regulatory or
law enforcement official.

Sec. 203.37   Investigation and notification requirements.

    (a)  Investigation of falsification of drug sample records. A
manufacturer or authorized distributor of record that has reason to
believe that any person has falsified drug sample requests, receipts,
or records, or is diverting drug samples, shall:
    (1) Notify FDA, by telephone or in writing, within 5 working days;
    (2) Immediately initiate an investigation; and
    (3) Provide FDA with a complete written report, including the
reason for and the results of the investigation, not later than 30 days
after the date of the initial notification in paragraph (a)(1) of this
section.
    (b)  Significant loss or known theft of drug samples. A
manufacturer or authorized distributor of record that distributes drug
samples or a charitable institution that receives donated drug samples
from a licensed practitioner shall:
    (1) Notify FDA, by telephone or in writing, within 5 working days
of becoming aware of a significant loss or known theft;
    (2) Immediately initiate an investigation into the significant loss
or known theft; and
    (3) Provide FDA with a complete written report, including the
reason for and the results of the investigation, not later than 30 days
after the date of the initial notification in paragraph (b)(1) of this
section.
    (c)  Conviction of a representative.
    (1) A manufacturer or authorized distributor of record that
distributes drug samples shall notify FDA, by telephone or in writing,
within 30 days of becoming aware of the conviction of one or more of
its representatives for a violation of section 503(c)(1) of the act or
any State law involving the sale, purchase, or trade of a drug sample
or the offer to sell, purchase, or trade a drug sample.
    (2) A manufacturer or authorized distributor of record shall
provide FDA with a complete written report not later than 30 days after
the date of the initial notification.
    (d)  Selection of individual responsible for drug sample
information. A manufacturer or authorized distributor of record that
distributes drug samples shall inform FDA in writing within 30 days of
selecting the individual responsible for responding to a request for
information about drug samples of that individual's name, business
address, and telephone number.
    (e)  Whom to notify at FDA. Notifications and reports concerning
prescription human drugs shall be made to the Division of Prescription
Drug Compliance and Surveillance (HFD-330), Office of Compliance,
Center for Drug Evaluation and Research, Food and Drug Administration,
7520 Standish Pl., Rockville, MD 20855. Notifications and reports
concerning prescription human biological products shall be made to the
Division of Inspections and Surveillance (HFM-650), Office of
Compliance, Center for Biologics

[[Page 67761]]

Evaluation and Research, Food and Drug Administration, 1401 Rockville
Pike, Rockville, MD 20852.

Sec. 203.38   Sample lot or control numbers; labeling of sample units.

    (a)  Lot or control number required on drug sample labeling and
sample unit label. The manufacturer or authorized distributor of record
of a drug sample shall include on the label of the sample unit and on
the outside container or packaging of the sample unit, if any, an
identifying lot or control number that will permit the tracking of the
distribution of each drug sample unit.
    (b)  Records containing lot or control numbers required for all
drug samples distributed. A manufacturer or authorized distributor of
record shall maintain for all samples distributed records of drug
sample distribution containing lot or control numbers that are
sufficient to permit the tracking of sample units to the point of the
licensed practitioner.
    (c)  Labels of sample units. Each sample unit shall bear a label
that clearly denotes its status as a drug sample, e.g., ``sample,''
``not for sale,'' ``professional courtesy package.''
    (1) A drug that is labeled as a drug sample is deemed to be a drug
sample within the meaning of the act.
    (2) A drug product dosage unit that bears an imprint identifying
the dosage form as a drug sample is deemed to be a drug sample within
the meaning of the act.
    (3) Notwithstanding paragraphs (c)(1) and (c)(2) of this section,
any article that is a drug sample as defined in section 503(c)(1) of
the act and Sec. 203.3(i) that fails to bear the label required in this
paragraph (c) is a drug sample.

Sec. 203.39   Donation of drug samples to charitable institutions.

     A charitable institution may receive a drug sample donated by a
licensed practitioner or another charitable institution for dispensing
to a patient of the charitable institution, or donate a drug sample to
another charitable institution for dispensing to its patients, provided
that the following requirements are met:
     (a) A drug sample donated by a licensed practitioner or donating
charitable institution shall be received by a charitable institution in
its original, unopened packaging with its labeling intact.
    (b) Delivery of a donated drug sample to a recipient charitable
institution shall be completed by mail or common carrier, collection by
an authorized agent or employee of the recipient charitable
institution, or personal delivery by a licensed practitioner or an
agent or employee of the donating charitable institution. Donated drug
samples shall be placed by the donor in a sealed carton for delivery to
or collection by the recipient charitable institution.
    (c) A donated drug sample shall not be dispensed to a patient or be
distributed to another charitable institution until it has been
examined by a licensed practitioner or registered pharmacist at the
recipient charitable institution to confirm that the donation record
accurately describes the drug sample delivered and that no drug sample
is adulterated or misbranded for any reason, including, but not limited
to, the following:
    (1) The drug sample is out of date;
    (2) The labeling has become mutilated, obscured, or detached from
the drug sample packaging;
    (3) The drug sample shows evidence of having been stored or shipped
under conditions that might adversely affect its stability, integrity,
or effectiveness;
    (4) The drug sample is for a prescription drug product that has
been recalled or is no longer marketed; or
    (5) The drug sample is otherwise possibly contaminated,
deteriorated, or adulterated.
    (d) The recipient charitable institution shall dispose of any drug
sample found to be unsuitable by destroying it or by returning it to
the manufacturer. The charitable institution shall maintain complete
records of the disposition of all destroyed or returned drug samples.
    (e) The recipient charitable institution shall prepare at the time
of collection or delivery of a drug sample a complete and accurate
donation record, a copy of which shall be retained by the recipient
charitable institution for at least 3 years, containing the following
information:
    (1) The name, address, and telephone number of the licensed
practitioner (or donating charitable institution);
    (2) The manufacturer, brand name, quantity, and lot or control
number of the drug sample donated; and
    (3) The date of the donation.
    (f) Each recipient charitable institution shall maintain complete
and accurate records of donation, receipt, inspection, inventory,
dispensing, redistribution, destruction, and returns sufficient for
complete accountability and auditing of drug sample stocks.
    (g) Each recipient charitable institution shall conduct, at least
annually, an inventory of prescription drug sample stocks and shall
prepare a report reconciling the results of each inventory with the
most recent prior inventory. Drug sample inventory discrepancies and
reconciliation problems shall be investigated by the charitable
institution and reported to FDA.
    (h) A recipient charitable institution shall store drug samples
under conditions that will maintain the sample's stability, integrity,
and effectiveness, and will ensure that the drug samples will be free
of contamination, deterioration, and adulteration.
    (i) A charitable institution shall notify FDA within 5 working days
of becoming aware of a significant loss or known theft of prescription
drug samples.

Subpart E--Wholesale Distribution

Sec. 203.50   Requirements for wholesale distribution of prescription
drugs.

    (a)  Identifying statement for sales by unauthorized distributors.
Before the completion of any wholesale distribution by a wholesale
distributor of a prescription drug for which the seller is not an
authorized distributor of record to another wholesale distributor or
retail pharmacy, the seller shall provide to the purchaser a statement
identifying each prior sale, purchase, or trade of such drug. This
identifying statement shall include:
    (1) The proprietary and established name of the drug;
    (2) Dosage;
    (3) Container size;
    (4) Number of containers;
    (5) The drug's lot or control number(s);
    (6) The business name and address of all parties to each prior
transaction involving the drug, starting with the manufacturer; and
    (7) The date of each previous transaction.
    (b) The drug origin statement is subject to the record retention
requirements of Sec. 203.60 and must be retained by all wholesale
distributors involved in the distribution of the drug product, whether
authorized or unauthorized, for 3 years.
    (c) Identifying statement not required when additional
manufacturing processes are completed. A manufacturer that subjects a
drug to any additional manufacturing processes to produce a different
drug is not required to provide to a purchaser a statement identifying
the previous sales of the component drug or drugs.
    (d) List of authorized distributors of record. Each manufacturer
shall maintain at the corporate offices a current written list of all
authorized distributors of record.
    (1) Each manufacturer's list of authorized distributors of record
shall specify whether each distributor listed

[[Page 67762]]

thereon is authorized to distribute the manufacturer's full product
line or only particular, specified products.
    (2) Each manufacturer shall update its list of authorized
distributors of record on a continuing basis.
    (3) Each manufacturer shall make its list of authorized
distributors of record available on request to the public for
inspection or copying. A manufacturer may impose reasonable copying
charges for such requests from members of the public.

Subpart F--Request and Receipt Forms, Reports, and Records

Sec. 203.60   Request and receipt forms, reports, and records.

    (a)  Use of electronic records, electronic signatures, and
handwritten signatures executed to electronic records.
    (1) Provided the requirements of part 11 of this chapter are met,
electronic records, electronic signatures, and handwritten signatures
executed to electronic records may be used as an alternative to paper
records and handwritten signatures executed on paper to meet any of the
record and signature requirements of PDMA, PDA, or this part.
    (2) Combinations of paper records and electronic records,
electronic records and handwritten signatures executed on paper, or
paper records and electronic signatures or handwritten signatures
executed to electronic records, may be used to meet any of the record
and signature requirements of PDMA, PDA, or this part, provided that:
    (i) The requirements of part 11 of this chapter are met for the
electronic records, electronic signatures, or handwritten signatures
executed to electronic records; and
    (ii) A reasonably secure link between the paper-based and
electronic components exists such that the combined records and
signatures are trustworthy and reliable, and to ensure that the signer
cannot readily repudiate the signed records as not genuine.
    (3) For the purposes of this paragraph (a), the phrase ``record and
signature requirements of PDMA, PDA, or this part'' includes drug
sample request and receipt forms, reports, records, and other
documents, and their associated signatures required by PDMA, PDA, and
this part.
    (b) Maintenance of request and receipt forms, reports, records, and
other documents created on paper. Request and receipt forms, reports,
records, and other documents created on paper may be maintained on
paper or by photographic imaging (i.e., photocopies or microfiche),
provided that the security and authentication requirements described in
paragraph (c) of this section are followed. Where a required document
is created on paper and electronically scanned into a computer, the
resulting record is an electronic record that must meet the
requirements of part 11 of this chapter.
    (c) Security and authentication requirements for request and
receipt forms, reports, records, and other documents created on paper.
A request or receipt form, report, record, or other document, and any
signature appearing thereon, that is created on paper and that is
maintained by photographic imaging, or transmitted electronically
(i.e., by facsimile) shall be maintained or transmitted in a form that
provides reasonable assurance of being:
    (1) Resistant to tampering, revision, modification, fraud,
unauthorized use, or alteration;
    (2) Preserved in accessible and retrievable fashion; and
    (3) Available to permit copying for purposes of review, analysis,
verification, authentication, and reproduction by the person who
executed the form or created the record, by the manufacturer or
distributor, and by authorized personnel of FDA and other regulatory
and law enforcement agencies.
    (d) Retention of request and receipt forms, reports, lists,
records, and other documents. Any person required to create or maintain
reports, lists, or other records under PDMA, PDA, or this part,
including records relating to the distribution of drug samples, shall
retain them for at least 3 years after the date of their creation.
    (e) Availability of request and receipt forms, reports, lists, and
records. Any person required to create or maintain request and receipt
forms, reports, lists, or other records under PDMA, PDA, or this part
shall make them available, upon request, in a form that permits copying
or other means of duplication, to FDA or other Federal, State, or local
regulatory and law enforcement officials for review and reproduction.
The records shall be made available within 2 business days of a
request.

Subpart G--Rewards

Sec. 203.70   Application for a reward.

    (a) Reward for providing information leading to the institution of
a criminal proceeding against, and conviction of, a person for the
sale, purchase, or trade of a drug sample. A person who provides
information leading to the institution of a criminal proceeding
against, and conviction of, a person for the sale, purchase, or trade
of a drug sample, or the offer to sell, purchase, or trade a drug
sample, in violation of section 503(c)(1) of the act, is entitled to
one-half the criminal fine imposed and collected for such violation,
but not more than $125,000.
    (b)  Procedure for making application for a reward for providing
information leading to the institution of a criminal proceeding
against, and conviction of, a person for the sale, purchase, or trade
of a drug sample. A person who provides information leading to the
institution of a criminal proceeding against, and conviction of, a
person for the sale, purchase, or trade of a drug sample, or the offer
to sell, purchase, or trade a drug sample, in violation of section
503(c)(1) of the act, may apply for a reward by making written
application to:
     (1) Director, Office of Compliance (HFD-300), Center for Drug
Evaluation and Research, Food and Drug Administration, 7500 Standish
Pl., Rockville, MD 20855; or
    (2) Director, Office of Compliance and Biologics Quality (HFM-600),
Center for Biologics Evaluation and Research, Food and Drug
Administration, 1401 Rockville Pike, Rockville, MD 20852, as
appropriate.

PART 205--GUIDELINES FOR STATE LICENSING OF WHOLESALE PRESCRIPTION
DRUG DISTRIBUTORS

    2. The authority citation for 21 CFR part 205 continues to read as
follows:

    Authority:  21 U.S.C. 351, 352, 353, 371, 374.

    3. Section 205.3 is amended by adding paragraphs (f)(9), (f)(10),
and (h) to read as follows:

Sec. 205.3   Definitions.

* * * * *
    (f) * * *
    (9) Drug returns, when conducted by a hospital, health care entity,
or charitable institution in accordance with Sec. 203.23 of this
chapter; or
    (10) The sale of minimal quantities of drugs by retail pharmacies
to licensed practitioners for office use.
* * * * *
    (h) Health care entity means any person that provides diagnostic,
medical, surgical, or dental treatment, or chronic or rehabilitative
care, but does not include any retail pharmacy or any wholesale
distributor. A person cannot simultaneously be a ``health care entity''
and a retail pharmacy or wholesale distributor.
    4. Section 205.50 is amended by revising paragraph (f)(2) to read
as follows:

[[Page 67763]]

Sec. 205.50   Minimum requirements for the storage and handling of
prescription drugs and for the establishment and maintenance of
prescription drug distribution records.

* * * * *
    (f) * * *
    (2) Inventories and records shall be made available for inspection
and photocopying by authorized Federal, State, or local law enforcement
agency officials for a period of 3 years after the date of their
creation.

    Dated: August 3, 1999.
Margaret M. Dotzel,
Acting Associate Commissioner for Policy.
[FR Doc. 99-30954 Filed 11-30-99; 12:38 pm]
BILLING CODE 4160-01-F