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Pharmacists face the daily dilemma of delivering safe and effective medication therapy to
patients. HIGPA’s GPO pharmacy leaders are sensitive to the potential impact on patient care
and increased costs caused by the difficulty and inability to source products when needed.
Drug shortages, product integrity, and primary and secondary distribution channels all present
unique challenges in ensuring the safety of products for patient care. Shortages of critical
medications, which require finding alternative products, often cause providers to expend more
resources and increase the complexity of providing patient care.
The intent of this document is to address the impact of the secondary distribution channel on the
supply chain, as well as provide some suggestions that health care providers should consider as
they contemplate accessing this distribution channel. Additionally, this paper discusses the
recently enacted Medicare bill and the provisions relating to the importation/reimportation of
pharmaceutical products, and its significance to patient safety. The suggestions in this document
should assist the purchaser in taking steps necessary to improve the integrity and safety of
pharmaceutical products.
The decision to obtain product outside of the routine distribution channel is a complex one, and
often is made in response to a critical and immediate need to treat a patient. Due to the urgency
that often occurs, the HIGPA Pharmacy Working Group suggests that the following process be
followed whenever possible prior to the urgent need to obtain product from alternative sources:
· Establish the integrity of the source prior to the need.
· Require that the alternative source provide the following as a minimum:
ß Provide a pedigree back to the previous source.
ß Certify that it is not a diverted product.
ß Certify that actions by the alternative source will not alter any original
manufacturer warranties or guarantees.
ß Certify that the product has been stored and handled consistent with product
labeling requirements.
· Consider development of a list of key pharmaceutical products that will not be
purchased from sources other than the manufacturer, or authorized distribution
channel.
Pharmacy leaders will continue to advocate for systems that increase the security and reliability
of the pharmaceutical supply chain.
The Health Industry Group Purchasing Association (HIGPA) is comprised of health care
product manufacturers, distributors, wholesalers, group purchasing organizations (GPOs), and
other types of companies. HIGPA formed the Pharmacy Working Group in 2002 to address
some of the issues facing GPOs and their health care provider members. A primary focus of the
Pharmacy Working Group is to support members’ efforts to improve the quality and safety of
patient care. To that end, HIGPA’s Pharmacy Working Group has produced this report.
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 2
INTEGRITY OF THE PHARMACEUTICAL SUPPLY CHAIN:
PRODUCT SOURCING FOR PATIENT SAFETY
INTRODUCTION
The Health Industry Group Purchasing Association (HIGPA) participated in the Drug Availability Task
Force (DATF) coordinated by the Healthcare Distribution Management Association (HDMA), as well as
a similar initiative by the American Society of Health-System Pharmacists (ASHP). One result of the
cooperation with HDMA was the creation of a white paper entitled “Ensuring Product Availability”
(September 2003). That document addressed many issues involved with the causes and mitigation of
product shortages. Areas not addressed by that white paper include the role of the secondary distribution
channel1
and the alternative distribution channel2
. Both are potential solutions, as well as potential
contributors, to the problem of shortages. The primary focus of this document are those segments of the
distribution channel.
Pharmacists face the daily dilemma of delivering safe and effective medication therapy to patients while,
at the same time, minimizing drug expenses to meet the fiscal demands of their health care organizations.
GPO pharmacy leaders are sensitive to the potential impact on patient care and increased costs caused by
the difficulty and inability to source products when needed. Therefore, the objectives of this document
are to:
· Address the impact of the secondary distribution channel on the supply chain.
· Provide assistance to the purchaser in deciding whether to access the secondary distribution
market for a product.
· Provide background information to assist pharmacy practitioners in the educating of physicians
and hospital executives regarding product shortages, potential impacts of those shortages, and the
secondary distribution market. A companion presentation will be available to facilitate this
education process for health care executives and providers to use when these issues are addressed
locally.
Products sourced through the secondary distribution market may be perfectly acceptable and fill an
important patient care role. The intent of this document is to further define the role of this alternative
source, as well as provide some suggestions that health care providers should consider as they
contemplate accessing the secondary distribution channel. Potential issues involved in outsourced
compounding services will not be specifically addressed in this document, but many of the concepts
outlined below may also apply to this alternative source of products. The responsibility to validate the
quality of pharmaceuticals purchased from any distribution channel participant, including secondary
distributors, rests with each purchaser. The difficulty for the purchaser today to effectively do that is
limited by the current inability to provide a product pedigree from “cradle to grave.” This technology is
under development, but it may be several years before it is widely available for all pharmaceutical
products.
1
Secondary distributors or distribution channel describes the movement of products purchased from an
authorized distributor, or source other than the manufacturer, to another intermediary distributor. These
products are then sold to the provider or end customer.
2
Alternative or gray market are terms used to describe a component of the secondary distribution channel. This
component commonly markets via fax, or other communication methods.
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 3
PROVIDER AND PATIENT CARE PERSPECTIVES
Drug shortages, product integrity, and primary3
and secondary distribution channels all present unique
challenges in ensuring the safety of products for patient care. The following provides information on
each.
Impact of Drug Shortages
The issue of drug shortages has been a continuing challenge and source of frustration for all practitioners.
Shortages of critical medications, which require finding alternative products, often cause providers to
expend more resources and increase the complexity of providing patient care. Valuable pharmacy
resources are consumed to:
· Find alternative product sources, placing multiple small orders to obtain sufficient quantity to
meet the organization’s need when allocation programs are in place or if one source does not have
a sufficient supply.
· Evaluate the quality/legitimacy of the product source, i.e., secondary distributor or outsourced
compounding pharmacy.
· Assess the duration of the shortage, collaborate with the medical staff to identify acceptable
therapeutic alternatives, and in some cases make formulary changes.
· Establish patient qualification criteria for selecting patients who will be eligible to receive
products in limited supply, which then results in the identification of patients who will not receive
the medication.
· Modify internal distribution systems to control and conserve products in short supply.
· Reschedule procedures based on critical product supply.
· Determine whether the acquisition cost of products purchased through the secondary market is
acceptable compared to the need for the product.
· Educate nurses and physicians on new drugs, doses, or delivery systems associated with
alternative products.
· Manage the potential increase for medication errors if alternative products must be utilized.
The last two points, in particular, can be even more problematic when treating pediatric and neonatal
patients.
Product Integrity
In addition to the increased chance for medication errors introduced by unfamiliar products and treatment
delays, another safety issue to consider is product integrity. When products are obtained from outside the
primary distribution channel (as defined earlier), the risk of the entry of adulterated or counterfeit
products may be increased. Uncertainty about either the storage conditions, or the distribution path to
which the product has been subjected, may also raise concerns about the product’s integrity and the
potential impact on patient care.
3
Primary distribution channel describes the normal process for distribution of product from the manufacturer to
the provider (end customer). For most products this is through the authorized wholesaler/distributor channel.
The other component of the Primary Distribution Channel is the sale of products directly by the manufacturer to
the provider. Products in the Primary Distribution Channel are sold to the provider for use in the care of their
patients, not for resale to other providers or reentry into the supply chain.
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 4
Some pharmacists and pharmacy buyers may choose not to purchase drugs through the secondary market
for economic reasons, or because they question the product integrity. However, others may choose to
participate in the secondary market regardless of cost, either because they find it convenient, or they incur
pressure to obtain products that are in short supply.
The Joint Commission on the Accreditation of Healthcare Organizations (JCAHO) standards require
establishing procedures to manage drug shortages. If an organization’s process includes using products
obtained from secondary wholesalers, the purchaser must identify the details of how, and when, to use
secondary wholesalers to acquire needed medications.
Primary and Secondary Distribution Channels
Health system pharmacists purchase the vast majority of their pharmaceuticals through pharmacy
wholesalers, and most of their remaining needs directly from the manufacturer. Pharmacy wholesalers
obtain the overwhelming majority of their medications directly from pharmaceutical manufacturers, but
many obtain some medications from secondary wholesalers or distributors who participate in the
alternative distribution channel.
In general, wholesalers are currently evaluating their processes and decision criteria with respect to this
activity and appear to be making significant progress in establishing better control of these alternate
procurement practices. Manufacturers, GPOs, state boards of pharmacy, and other supply chain
participants are also making decisions or recommendations that wholesalers purchase products directly
from the manufacturer.
The secondary distribution channel may be one avenue for the entry of adulterated or counterfeit
medications into the distribution channel. The recent announcements by manufacturers outlining their
efforts to increase the integrity of the supply chain are aimed at specifically addressing this issue. Major
U.S.-based pharmaceutical manufacturers recently announced they would no longer sell their drugs and
devices to U.S. wholesalers who also obtain the manufacturers’ products from sources other than the drug
makers. The companies took the action to thwart counterfeiters of their products. Other U.S.
manufacturers have announced specific initiatives as well. Some pharmaceutical companies may
unilaterally take similar steps as they formulate their individual strategies to address this issue. However,
smaller pharmaceutical companies may confront resistance from the distribution sector, because the
smaller companies may lack the clout to require distributors to purchase their products directly from
them. Such resistance could take several forms, such as refusal to stock the product, or requests for
increased fees.
An industry report to the Food and Drug Administration (FDA) in 2001 noted that more than 6,500
licensed wholesalers operate in the United States. When discounted goods are offered by manufacturers
to meet sales targets or reduce inventory, these secondary distributors are willing to risk substantial
capital to acquire them. These purchasers then turn the product over quickly by selling it to their network
of customers, which might include other distributors, including those in the primary distribution channel,
as well as drug dispensing organizations.
Some small wholesalers may build inventory by stocking medications nearing their expiration dates or by
taking advantage of regional variations in supply. Secondary distributors usually focus on providing a
small target list of medications to a relatively small number of customers, often contacting the customer
by fax on a frequent basis. These companies do little advertising or sales promotion.
Within the secondary distribution channel, products may change hands many times before reaching the
provider. It is also important to understand that the frequency of these transactions is not a true measure
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 5
of the availability of the problem product. It is very inexpensive for the secondary market players to send
out a multitude of faxes even though they may have just a few packages of the problem product in stock.
This perceived abundance of supply, when measured by the multitude of communications, then fosters
credibility concerns by the provider with respect to whether manufacturers and/or primary wholesalers
and distributors have a legitimate reason for not being able to supply the product at the usual selling price.
This credibility concern is then directed at the hospital’s pharmacy department, and is exacerbated when a
physician receives an unsolicited offer from a secondary supplier for a product that appears to be of
limited availability in the hospital. The physician may have an impression that there is an abundant
supply without realizing that these unsolicited offers generally are for very limited quantities of product.
The presence of the secondary distribution channel may serve a need by providing options for obtaining
necessary medications. However, in light of the reality of prolonged drug shortages, the secondary supply
channel often serves to contribute to greater frustration on the part of patient care providers. This
alternative distribution channel also creates a situation where critical products are stockpiled for economic
reasons. Small amounts of product are divided among many distribution outlets rather than being more
centrally available in the primary distribution channel.
During times of limited availability, these organizations often offer limited supplies of critical
medications at increased prices. Purchasers may have to call the secondary distributor for the current
price, which sometimes can be as much as five to ten times the normal price. For example, at the height
of the methylprednisolone injection shortage in 2003, one secondary distributor offered a 500 mg vial of
this product for $40.00, which was more than 500% above the normal price. An example documented in
a story in The Washington Post (October 19, 2003) revealed that a vaccine purchased by one wholesaler
for $23.65/vial during the flu vaccine shortage of 2000 eventually was sold to an end user for $147.00 per
vial. The cost of small quantities of medications from these distributors may not necessarily be
prohibitive, but when substantial quantities are required during a product shortage situation, significant
excessive costs can be incurred by the provider.
Product Shortage Frequency
As of the end of the 3rd quarter in 2003, the drug information center of the University of Utah Health
System reported the presence of 39 new drug shortages thus far during the year. While that figure has
decreased from a total number of shortages of 119 in 2001 and 87 in 2002, the absence of critical
medications remains a prominent patient care issue. In addition, of the 119 shortages identified in 2001,
35 were still present in 2003. As a result, pharmacists and providers will continue to face the pressure of
whether or not to access medications that are in short supply through secondary or alternative distribution
channels.
LEGAL AND REGULATORY CONSIDERATIONS
It is important to understand that the U.S. marketplace is a free market system and, as such, entrepreneurs
are free to engage in business activities provided that they are legal and meet licensing or regulatory
requirements. Some practitioners have suggested that some of the smaller secondary distributors who
elect to charge prices for selected products, often in short supply, several times above the customary price
should be prohibited from such practices. However, there appears to be no price control, law or
regulation in the U.S. open market system that prevents such activities and the authors are unaware of any
specific violations of other related regulatory requirements.
The origin of the product, as well as how it made its way through the supply chain, are questions to be
asked when the purchaser is considering whether to obtain products from a secondary source. This is
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety”
especially important when the purchaser has not previously validated the integrity of the seller. Three
examples are outlined below:
· Diverted product – One example of diversion occurs when a product is purchased at a discounted
price under a GPO contract, and then resold in breach of the GPO contract, to an entity that is not
eligible for that price. The appropriate action to be taken by anyone with knowledge of such
activity would be to report it to the GPO and manufacturer.
· Counterfeit or adulterated product – This is definitely a patient care issue due to the questionable
safety and efficacy of the product. Another related concern is the redistribution of expired stock.
Selling counterfeited or adulterated products is a clear violation of food and drug laws and
regulations. However, the product integrity issue might not be known prior to patient
administration and may first be discovered when a patient experiences an untoward effect.
Concerns regarding safety and product integrity should be reported to the state board of pharmacy
and/or the FDA. Other agencies, such as the Drug Enforcement Administration (DEA), may need
to be involved depending on the situation.
· Stockpiling and market timing – A savvy purchaser with good market connections could possibly
hoard non-adulterated product until such time that the market price increased significantly due to
the short supply. This would not be a violation unless the product was obtained through
diversion. It is unlikely that any regulatory or legal action could be taken with respect to this type
of profiteering, unless it was determined that the product was obtained illegally.
An article titled “Florida Medicaid Fraud Costs Millions, Report Says” in the December 19, 2003 issue of
the Washington Post references a report by a statewide grand jury which identified instances where
medications were diverted by Medicaid patients in exchange for cash. The report also describes one
situation where a temperature-sensitive product was purchased on the street and stored in a hot van before
being sold back into the distribution channel. These instances raise both legal and patient safety issues.
Several state and federal agencies are concerned with health care product supply issues; however, their
authority is limited. The following are some examples of how various agencies might get involved in the
different aspects related to these issues:
· The authority of the Center for Medicare and Medicaid Services (CMS) may be limited to factors
affecting cost or quality for the patients enrolled in CMS programs.
· The FDA is primarily responsible for safety, security, and protection of public health.
· The Federal Trade Commission (FTC) investigates potential collusion or restraint of trade issues.
· The U.S. Justice Department is involved in investigation and prosecution of violations of
antitrust, FDA and health care fraud and abuse claims laws.
· State boards of pharmacy regulate the practice of pharmacy within each state and will become
involved in investigations and proceedings where pharmacy rules and regulations may have been
violated. Wholesalers and distributors are regulated by states, and are therefore subject to state
laws and regulations. Additionally, for controlled drugs, they are regulated by the DEA.
Some of the areas identified for improving security of the supply include:
· Significant enhancement of penalties for tampering, counterfeiting and diverting.
· Revision of the pedigree aspects of the Prescription Drug Marketing Act (PDMA) to require
establishment of a product pedigree.
· Implementation of technology such as EPC (electronic product code) via RFID (radio frequency
identification) to create an electronic pedigree, which will provide information about the route of
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 7
a specific product package from “cradle to grave.” Such an initiative can also secure the supply
channel to identify inappropriate importation of products.
· Creation of a centralized and secure database of pedigree information for access by authorized
parties to validate the integrity of a product.
· Coordination of regulatory initiatives at the federal level to avoid conflicting language and
requirements between states.
· Improved oversight by state boards of pharmacies of wholesalers and distributors including onsite
inspection at reasonable intervals.
· Development and implementation of appropriate controls on returned goods to increase integrity
in the system while still allowing returns and redistribution, where appropriate, of pharmaceutical
products.
CONSIDERATIONS FOR EVALUATING PRODUCT SOURCING OPTIONS
The decision to obtain product outside of the routine distribution channel is a complex one, and often is
made in response to a critical and immediate need to treat a patient. Due to the urgency that often occurs,
the HIGPA Pharmacy Working Group suggests that the following process be followed whenever possible
prior to the urgent need to obtain product from alternative sources:
· Establish the integrity of the source prior to the need. Where possible, establish a list of approved
secondary suppliers. The evaluation of secondary suppliers, in advance, may be difficult due to
the sporadic nature of availability. The secondary supplier who fulfilled the last need may not
have the current product available, which then necessitates the consideration of another
alternative supplier in the secondary channel.
· Require that the alternative source provide the following as a minimum:
o Provide a pedigree back to the previous source. Unwillingness to do this should be a cause
for caution. Recent legislation in Florida requires pedigrees for a specific list of products that
either have been targets for counterfeiters, or are likely candidates. The FDA has convened a
task force and conducted a public hearing in an effort to evaluate this issue. Technology
currently under development may facilitate the capture and maintenance of product pedigree
information. Radio frequency identification (RFID) is one technology that has this potential.
Ideally, there should be a “cradle to grave” pedigree available and certified by all parties in
the supply chain which handled a specific product. Today, however, the technology and
systems available do not support this, even in the primary distribution channel. New
technologies, such as the RFID, should provide this capability over the next several years.
o Certification that it is not a diverted product.
o Certification that actions by the alternative source will not alter any original manufacturer
warranties or guarantees.
o Certification that the product has been stored and handled consistent with product labeling
requirements. The purchaser should make every effort possible to validate that the product
was stored properly throughout the distribution process for any product that requires special
handling and storage such as a narrow temperature range.
· Consider development of a list of key pharmaceutical products that will not be purchased from
sources other than the manufacturer, or authorized distribution channel. This list should be based
on patient care needs, the likelihood of tampering or counterfeiting, and the potential risk to the
patient. The list in the Florida law referenced above may be a useful reference for creating this
list.
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 8
IMPORTATION/REIMPORTATION
Although the recently enacted “Medicare Prescription Drug Improvement and Modernization Act of
2003” (PL 108-173) directs the U.S. Department of Health and Human Services (HHS) to issue
regulations permitting the importation4
(or reimportation5
) of prescription drugs from Canada, such action
is not allowed unless HHS certifies that importation will not create any additional risk to public health
and safety, and will lead to significant cost savings to U.S. consumers. In that regard, the new law is not
very different from the old, and should not be expected to lead to the lifting of restrictions on imports in
the near term. Even so, the new law’s importation provision is limited to Canada only.
More generally, the HIGPA Pharmacy Working Group reviewed the issues surrounding drug importation
(and reimportation) by health care providers and patients. Based upon this review, the following issues
have been identified:
· The integrity of an imported product may be questionable and there is no current pedigree6
process available to validate the integrity of the product.
· Due to the lack of currently available systems and technology that facilitate the assignment and
tracking of serial numbers for individual packages, there is no secure method to separate imported
stock from stock obtained through primary distribution channels.
· There currently is no available technology in use to validate that an imported or reimported
product was stored according to U.S. Pharmacopeia (USP) standards. Storage outside of the
standards may adversely affect the activity and safety of a pharmaceutical product.
The following list outlines the minimum safeguards that HIGPA’s Pharmacy Working Group believes to
be critical to have in place prior to importation or reimportation of any pharmaceutical product:
· Electronic pedigree that can provide secure tracking of product at the individual package level
throughout the supply chain regardless of its source.
· Development by the FDA of acceptable and efficient regulations on reimportation and
importation to ensure product integrity of the imported product.
· Development of technology that tracks storage conditions and validates conformance to USP
standards for products that require storage within a narrow temperature range throughout the
supply chain.
· Assurance that entities in other countries, which export products to the U.S. market, are regulated
appropriately, using the same standards as are required of U.S. supply chain participants.
These are in addition to the recommendations on general product sourcing outlined in other sections of
this document.
Pursuing importation as a cost savings strategy without implementation of the above safeguards places an
undue risk on patient care and is counter to current initiatives to improve patient care and safety. Going
forward, the position of the FDA on importation/reimportation should serve as a key indicator for the
acceptability of this method of procuring products.
4
Importation refers to buying products from sources outside of the United States.
5
Reimportation refers to importing of products, which were originally exported from the United States, back to
this country.
6
Pedigree is a statement that traces the drug from the point of manufacture and contains information about all
transactions involving the product from origin until it reaches the end user. It may be in a paper or electronic
form.
HIGPA’s Pharmacy Working Group February 9, 2004
“Product Sourcing for Patient Safety” 9
Providers are encouraged to consider these issues as they make decisions regarding sourcing of products.
It is recommended that providers who are interested in accessing pharmaceuticals from outside of the
U.S. distribution system should first become involved in advocating for the implementation of systems
that facilitate an electronic pedigree to insure the integrity of products. Anything short of this may be
construed as placing financial considerations above patient care and safety.