California to amend track and trace law to deal with ‘drop shipments’

The exemption for wholesalers for direct manufacturer-to-pharmacy shipments, known as “drop shipments​,” is being proposed because the wholesaler never takes physical possession of the drugs, though the wholesaler “does legally ‘own’ the drug as the authorized distributer and invoices the purchaser in place of the manufacturer as part of the sale​,” according to the board’s explanation of the proposed amendment​.

The proposal specifies that in the case of a drop shipment, the manufacturer would “omit data elements from the pedigree showing transfers of ownership to and from the wholesale distributor, including any certifications of receipt and delivery of the drug by the wholesaler​.”

The electronic pedigree, however, would need to be “conveyed directly from the manufacturer to the authorized purchaser prior to or contemporaneously with the delivery​” of the drug, according to the board.

Drop shipments are frequently used for specialty drugs requiring careful handling, unique administration to a patient, and/or low stock, according to advice the board said it received. Drop shipments also can dramatically decrease distribution times for emergency and critical patient need cases.

"As I understand it, in these kinds of transactions, often the manufacturer doesn’t want to be bothered with setting up a payment contract with the pharmacy so they will notify one of their wholesalers to handle the financial part​," consultant Dirk Rodgers told In-Pharmatechnologist.com. "So the wholesaler may not have any knowledge of the transaction until they receive an invoice from the manufacturer outlining the drop shipment—and in some cases that doesn’t occur for days and even weeks after the shipment has been made​."  

"The problem is, to update the pedigree would have meant that the wholesaler would have had to certify the truth and accuracy of the data on the pedigree, but because they would never see the actual product, they would not want to be held to that kind of certification​," Rodgers added.

Background​

The California law - which is designed to secure California’s pharma supply chain via electronic pedigrees tracking the delivery of drugs - will take effect on a staggered basis from Jan. 1, 2015, through July 1, 2017.

The pedigrees contain data on every transaction from sale by a manufacturer, through acquisition by a wholesaler, repackager or pharmacy, all the way until a final sale to a pharmacy. Each e-pedigree is required to include every transaction and change of ownership to ensure drugs are not diverted from their intended recipients, which could potentially root out counterfeit drugs. 

Federal track-and-trace legislation making its way through Congress is expected to build largely off of the California law. In June, the House passed its version​ of the bill while the CBO (Congressional Budget Office) said the Senate’s version will not be too onerous for the industry​.