JOHN M. GRAY TESTIMONY TO THE CONGRESSIONAL CRIMINAL JUSTICE, DRUG POLICY & HUMAN RESOURCES SUBCOMMITTEE

Written Testimony of John M. Gray
President and CEO
Healthcare Distribution Management Association (HDMA)

Presented to the United States House of Representatives
Government Reform Committee
Subcommittee on Criminal Justice, Drug Policy & Human Resources
Hearing entitled, "Sick Crime: Counterfeit Drugs in the United States"
November 1, 2005

Mr. Chairman and Members of the Subcommittee, the Healthcare Distribution Management Association (HDMA) appreciates the opportunity to submit testimony on efforts currently underway to further strengthen the integrity of the nation’s prescription drug supply.

HDMA represents approximately 46 primary healthcare distributors in their efforts to secure a safe, efficient and reliable distribution system that provides life-saving healthcare products and services. HDMA member companies are responsible for the daily delivery of nine million healthcare products to more than 140,000 retail pharmacies, hospitals, nursing homes, clinics and other provider sites in all 50 states.

HDMA remains deeply committed to working with manufacturers, pharmacies, government, regulators and law enforcement to further protect patients from increasingly sophisticated counterfeiting threats.

In working toward that goal, HDMA would like to emphasize:

1. The primary responsibility of the healthcare industry is to ensure patient health and safety.
2. Our mission as healthcare distributors is to ensure the drug supply chain remains safe, secure and tightly regulated.
3. Significant efforts are underway to further protect the domestic supply chain from counterfeit and adulterated products.
4. There is no single solution to secure the integrity of the prescription drug supply – the only effective response involves multiple strategies and includes the commitment of all supply chain partners.

According to the FDA, the number of instances where counterfeit products have breached the supply chain has increased from six cases in the year 2000 to 58 cases in 2004. Each of these situations poses a serious public health threat. As healthcare distributors, we recognize we must do everything we can to ensure that the products we deliver to pharmacies and other healthcare providers are authentic.

Each member of the supply chain – the manufacturer, the distributor and the pharmacy – must work in tandem to ensure a safe and reliable supply of prescription drugs for patients.

Current Regulatory Environment
The responsibility to provide a safe and reliable supply of prescription drugs requires constant vigilance. The nation’s drug distribution system is regulated at both the federal and state levels of government under the Prescription Drug Marketing Act1 (PDMA). The PDMA established minimum federal standards for the licensing of prescription drug distributors. States, however, continued to be responsible for establishing their own licensing requirements, consistent with the minimum federal standards, and to license and inspect pharmaceutical distributors.

Since the enactment of PDMA, states have enacted a patchwork of regulatory standards that is inconsistent and often contradictory. In part, this is because of resource constraints within various states and the challenges of regulating a distribution system that is increasingly dependent upon interstate commerce. The resulting regulatory patchwork provides opportunities for unethical and criminal entities to avoid consistently strict regulation by taking advantage of the regulatory voids that exist state-by-state.

Ongoing Supply Chain Improvements
Given the increasing sophistication and frequency of product counterfeiting, it is imperative that our nation remains vigilant and constantly seeks new approaches to further secure the domestic prescription drug supply. These ongoing efforts include:

1. Advocating strong, uniform federal licensing standards, tough enforcement and harsher criminal penalties for counterfeiting
2. Adopting new technologies
3. Developing and implementing industry best practices.

1. Uniform Federal Standards for Distributor Licensure
In an era of increasingly sophisticated threats to the integrity of the nation’s prescription drug supply, HDMA believes a uniform federal standard for the licensure of pharmaceutical distributors is necessary to enhance the protection of the public health. The U.S. healthcare supply chain has evolved over time, and there have been important changes in the nearly two decades since Congress enacted the PDMA. It should be no surprise that a regulatory system crafted in the 1980s now would face very different challenges that require very different solutions.

The current state-by-state licensing structure cannot provide the strong and consistent regulation of pharmaceutical distribution necessary to further secure the supply chain and protect the safety of the public. While many states have taken their licensure and inspection responsibilities seriously, we remain concerned that too few states have devoted sufficient attention or resources to this area. For example, some states will issue a distribution license without ever conducting a pre-license inspection. Furthermore, many states struggle with the ability to regulate out-of-state distributors in an industry that is increasingly shipping products across state lines. Many states also are slow to update and make publicly available the licensing status of a distributor or pharmacy.

HDMA believes this patchwork of state regulation has led to inconsistent standards and maintaining the integrity of the United States’ prescription drug supply is a national priority that requires a federal solution.

The only truly effective response is to provide the U.S. Food and Drug Administration (FDA) with authority to license prescription drug distributors according to uniform, tough, federal standards, and to maintain an optional role for states to inspect facilities. HDMA pledges to work with lawmakers at the national and state levels to ensure that the resulting licensing framework enhances supply chain security while maintaining a reliable and efficient supply of medicines for patients.

HDMA has a consistent and long track record of working with state and federal policymakers and regulators to address the challenges in the current regulatory system. HDMA has testified in the states and before Congress, and has a strong record of submitting formal comments and recommendations in response to state and federal proposals. The association is committed to strong and consistent federal licensure standards.

2. Adopting New Technologies
HDMA strongly believes that technology can serve an important role in securing the nation’s prescription drug supply; however, no single technology can absolutely prevent counterfeiting. Rather, a layering of various strategies can create a significant barrier to entry. Overt and covert authentication technologies currently are being used by manufacturers today.

As those who seek to introduce counterfeit or adulterated products into the supply chain become more sophisticated, so, too, must the technologies that manufacturers, distributors and pharmacies employ to defeat them. We believe current and emerging technologies such as those employing electronic product codes (EPC)/radio frequency identification (RFID) hold the most promise for tracking, tracing and authenticating a product’s movement across the supply chain.

Using RFID technology, a tiny radio frequency chip containing essential data in the form of an electronic product code will allow supply chain stakeholders to track the chain of custody (or pedigree) of every unit of medication on an individual basis. By tying each unit to a unique electronic ID, products can be tracked electronically through the supply chain.

EPC/RFID is more efficient and cost-effective than paper pedigrees or alternative electronic tracking methods that do not involve the serialization of individual products. Paper pedigrees have been forged in previous domestic counterfeiting situations. Moreover, paper pedigrees would literally halt the efficient distribution of drugs given the volume of products delivered and the sophisticated automation technology utilized to do so safely and efficiently.

Tremendous progress is being made in the development and adoption of EPC/RFID technology in the pharmaceuticals market. This is a monumental endeavor that will require close collaboration among all constituents of the healthcare supply chain and will take several years to proliferate the market in the United States.

Industry, commercial vendors and government agencies are working together to develop the necessary standards for communication of tagged items across the supply chain. However, EPC/RFID cannot be uniformly and successfully implemented if state requirements are inconsistent and contradictory. A uniform, federal approach is required in order to move forward with an open and consistent EPC/RFID adoption process.

3. Developing and Implementing Industry Best Practices
Finally, the entire supply chain is constantly identifying new ways to improve upon business practices that can enhance product safety. HDMA has developed a voluntary set of best practices known as the “Recommended Guidelines for Pharmaceutical Distribution System Integrity.” These guidelines establish a rigorous due diligence process for pharmaceutical distributors in order to further protect the integrity of the pharmaceutical supply chain.

While the individual states worked to pass and implement more stringent regulations and stiffer penalties, HDMA members made a conscious decision in the fall of 2003 to move forward and adopt these business practices. Among other security measures, the HDMA Guidelines require:

1. Civil and criminal background checks
2. Physical site inspections
3. Ongoing PDMA compliance reviews
4. Maintenance of a list of “at risk” products
5. A corporate system in place to report suspicious or counterfeit products

Since the implementation of these voluntary guidelines, there has not been a single widespread counterfeit pharmaceutical incident involving the nation’s primary distributors.

Conclusion
In conclusion, HDMA members recognize the public trust placed upon them to ensure that authentic pharmaceutical products are handled, stored and ultimately, dispensed to patients safely and efficiently. Our message is that securing the nation’s prescription drug supply chain requires constant vigilance in cooperation with all supply chain partners – from the manufacturer, to the distributor, to the pharmacy. A combination of many approaches is required, involving uniform federal licensure standards, the use of innovative new technologies and the adoption of best business practices. The health and safety of our nation, literally, is at stake.

HDMA appreciates this opportunity to provide the perspective of the nation’s full-service healthcare distributors on these critically important issues.