79R8008 YDB-D
By: Uresti H.B. No. 3239
A BILL TO BE ENTITLED
AN ACT
relating to the wholesale distribution of prescription drugs;
providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 431, Health and Safety Code, is amended
by adding Subchapter N to read as follows:
SUBCHAPTER N. WHOLESALE DRUG DISTRIBUTION
Sec. 431.401. SHORT TITLE. This subchapter may be cited as
the Wholesale Prescription Drug Distribution Protection and
Licensing Act of 2005.
Sec. 431.402. SCOPE. This subchapter applies to any person
engaging in the wholesale distribution of prescription drugs in
this state.
Sec. 431.403. PURPOSE. The purpose of this subchapter is to
strengthen existing state requirements governing the distribution
of prescription drugs in order to protect the drug supply and
consumer safety. The subchapter accomplishes this goal by:
(1) enhancing the licensing requirements for
wholesale distributors;
(2) expanding the department's duties and enforcement
responsibilities; and
(3) enhancing the criminal penalty provisions for
knowingly tampering with, counterfeiting, or diverting
prescription drugs.
Sec. 431.404. DEFINITIONS. In this subchapter:
(1) "Authorized distributor of record" means a
wholesale drug distributor with whom a manufacturer has established
an ongoing relationship to distribute the manufacturer's product.
An ongoing relationship exists when a wholesale drug distributor,
including any affiliated group, as defined in Section 1504,
Internal Revenue Code of 1986, of which the wholesale distributor
is a member:
(A) is listed on the manufacturer's list and the
list is updated monthly;
(B) has a written agreement in effect with the
manufacturer; or
(C) has a verifiable account with a line of
credit with the manufacturer and minimal transaction or volume
requirement thresholds of 5,000 sales units per company within 12
months or 12 purchases from the manufacturer at the manufacturer's
minimum purchasing requirements per invoice within 12 months.
(2) "Sales unit" means the unit of measure the
manufacturer uses to invoice the manufacturer's customer for the
particular product.
(3) "Verifiable account" means:
(A) an account that the manufacturer confirms, in
written or oral form, is assigned to the wholesale distributor; or
(B) copies of the manufacturer's invoices
containing a printed account number and the name and address of the
wholesale distributor.
(4) "Wholesale distribution" means distribution of
prescription drugs to persons other than a consumer or patient, but
does not include:
(A) intracompany sales;
(B) the purchase or other acquisition of a drug
by a hospital or other health care entity that is a member of a group
purchasing organization for the hospital's or entity's own use from
the group purchasing organization or from other hospitals or health
care entities that are members of such organizations;
(C) 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;
(D) 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;
(E) the sale, purchase, or trade of a drug or an
offer to sell, purchase, or trade a drug for emergency medical
reasons;
(F) 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 in accordance with this chapter or other
law;
(G) the distribution of drug samples by a
representative of a manufacturer or an authorized distributor of
record;
(H) the sale, purchase, or trade of blood or
blood components intended for transfusion;
(I) drug returns, when conducted by a hospital,
health care entity, or charitable institution in accordance with
this chapter or rules adopted under this chapter; or
(J) the sale of minimal quantities of drugs by
retail pharmacies to licensed practitioners for office use.
(5) "Wholesale distributor" means any person engaged
in wholesale distribution of prescription drugs, including
manufacturers, repackagers, own-label distributors, private-label
distributors, jobbers, brokers, warehouses, manufacturer
warehouses, distributor warehouses, chain drug warehouses,
wholesale drug warehouses, independent wholesale drug traders, and
retail pharmacies that conduct wholesale distributions.
Sec. 431.405. RULEMAKING AUTHORITY. The executive
commissioner of the Health and Human Services Commission shall
adopt rules to implement this subchapter.
Sec. 431.406. LICENSE REQUIRED. (a) A person may not
engage in the wholesale distribution of drugs in this state unless
the person holds a license issued under this subchapter.
(b) The license must be renewed annually.
Sec. 431.407. CONTENTS OF LICENSE APPLICATION. (a) An
application for a license or renewal license for a wholesale
distributor or an out-of-state wholesale distributor submitted to
the department must include:
(1) the name, full business address, and telephone
number of the applicant;
(2) all trade or business names used by the applicant,
including all affiliated businesses;
(3) the name, address, and telephone number of a
contact person for each facility used by the applicant for the
storage, handling, and distribution of prescription drugs;
(4) the type of ownership or operation, such as a
partnership, corporation, or sole proprietorship;
(5) the names of each owner and the operator of the
establishment, including:
(A) if an individual, the name of the individual;
(B) if a partnership, the name of each partner
and the name of the partnership;
(C) if a corporation:
(i) the name, address, and title of each
corporate officer and director;
(ii) the name and address of the
corporation, the name and address of the resident agent of the
corporation, and the corporation's state of incorporation; and
(iii) for non-publicly held corporations
only, the name and address of each shareholder that owns 10 percent
or more of the outstanding stock of the corporation;
(D) if a sole proprietorship, the full name of
the sole proprietor and the name of the business entity; or
(E) if a limited liability company:
(i) the name and address of each principal;
(ii) the name and address of each manager;
and
(iii) the name and address of the limited
liability company, the name and address of the resident agent of the
limited liability company, and the state in which the limited
liability company is organized;
(6) a list of all state licenses, registrations, or
permits issued to the applicant by any other state licensing
authority that authorizes the applicant to purchase, possess, and
distribute prescription drugs, including the license,
registration, or permit numbers;
(7) a list of all disciplinary actions by a state or
federal agency against the applicant, as well as any disciplinary
actions against principals, owners, directors, or officers during
the seven years before the date of the application;
(8) the number of employees at each facility and
screening procedures for hiring;
(9) the minimum liability insurance limits the
applicant maintains, including general as well as product liability
insurance;
(10) a full description of each facility or warehouse,
including all locations used for prescription drug storage or
distribution, which must include:
(A) square footage;
(B) security and alarm system description;
(C) terms of lease or ownership;
(D) address; and
(E) temperature and humidity controls;
(11) the tax year of the applicant;
(12) a copy of the deed for the property on which the
applicant's establishment is located, for an establishment owned by
the applicant, or a copy of the applicant's lease for the property
on which the applicant's establishment is located that has an
original term of not less than one calendar year, for an
establishment not owned by the applicant;
(13) a description of the applicant's prescription
drug import and export activities; and
(14) a description of the applicant's written
procedures.
(b) An applicant with multiple facilities may designate one
person to serve as the contact person for all of the applicant's
facilities and affiliates for purposes of Subsection (a)(3).
(c) The information required under this section that is
personally identifiable or a trade secret shall be maintained by
the department as confidential and is exempt from public
disclosure.
Sec. 431.408. REQUIRED INFORMATION FROM DRUG MANUFACTURER.
(a) A manufacturer of a prescription drug sold in this state shall:
(1) file with the department a written list of all of
the manufacturer's authorized distributors of record; and
(2) notify the department not later than the 10th day
after the date of any change made to the list.
(b) The department shall publish a list of all authorized
distributors of record on the department's Internet website and
update the list at least monthly.
Sec. 431.409. DEPARTMENT DUTIES WITH REGARD TO INSPECTIONS,
APPLICANT BACKGROUND CHECKS, AND REVOCATION, DENIAL, AND
SUSPENSION OF WHOLESALE DISTRIBUTOR LICENSE. (a) Before issuing
an initial license and periodically thereafter on the schedule
determined by the department, the department shall conduct a
criminal and financial background check of each wholesale
distributor applicant. The background check must include:
(1) a criminal background and criminal and civil
litigation check of all company officers, key management,
principals, and, for non-publicly held companies, the owners with
10 percent or greater interest in the company;
(2) a driver's license and social security
verification of all company officers, key management, principals,
and owners;
(3) a credit history of the company and the company's
key officers maintained by an independent third-party credit
evaluation organization;
(4) a check of any national database of licensed
prescription drug wholesale distributors to verify where the
distributor is licensed and obtain other available relevant
information;
(5) a check to determine if civil or criminal
litigation exists against the company; and
(6) verification of the date of incorporation, years
in business, place of incorporation, and form of entity.
(b) The information collected by the department as part of
the background check described in Subsection (a) is exempt from
public disclosure.
(c) The department shall conduct a physical inspection of
each in-state applicant's facility before issuing a license and
conduct regular periodic inspections at least every three years
after the license is originally issued. The department must use a
qualified inspector who is specifically trained to conduct
inspections of wholesale distributors and has current training and
knowledge regarding the wholesale drug distribution industry.
(d) The department shall make publicly available on the
department's Internet website the dates of the first and most
recent inspections of each wholesale distributor.
(e) The department shall notify appropriate parties on
license suspension, revocation, expiration, or other relevant
action and make reports of those actions publicly available on the
department's Internet website not later than the fifth business day
following the date of the action.
Sec. 431.410. SURETY BOND. (a) An applicant for a
wholesale distributor license or renewal license shall submit a
surety bond of $100,000 or evidence of other equivalent means of
security acceptable to the department, such as insurance, an
irrevocable letter of credit, or funds deposited in a trust account
or financial institution. A separate surety bond or other
equivalent means of security is not required for each separate
location of the distributor or for affiliated companies if the
separate locations or affiliated companies are required to apply
for or renew a wholesale distributor license with the department.
(b) The purpose of the surety bond or other equivalent means
of security is to secure payment of any administrative penalties
imposed by the department and any fees or costs incurred by the
department regarding a license if the license holder fails to pay
the penalty, fee, or cost within 30 days after the date the
imposition of the penalty, fee, or cost becomes final.
(c) The department may make a claim against the surety bond
or other equivalent means of security until the later of the first
anniversary of the date the wholesale distributor license expires
or the 60th day after the date any administrative or legal
proceeding authorized under this chapter involving the license
holder is concluded, including any appeal. The surety bond or other
equivalent means of security must remain in place or in effect until
at least the later of the first anniversary of the date the
wholesale distributor's license expires or the 60th day after the
date any administrative or legal proceeding authorized under this
chapter involving the license holder is concluded, including any
appeal.
Sec. 431.411. DESIGNATED REPRESENTATIVE. (a) A wholesale
distributor licensed by the department shall identify a designated
representative who is responsible for the distributor's compliance
with applicable state and federal laws. A designated
representative:
(1) may be a corporate employee or officer, outside
counsel, or an outside consulting specialist with the authority to
help ensure compliance;
(2) is not required to be physically present at the
facility; and
(3) may have responsibility for multiple licensed
facilities.
(b) A wholesale distributor shall notify the department not
later than the 10th business day after the date of any change in its
designated representative. A wholesale distributor may not operate
under a wholesale distributor's license for more than 30 business
days without a designated representative.
Sec. 431.412. PRESCRIPTION DRUG WHOLESALE DISTRIBUTOR
ADVISORY COUNCIL. (a) The Prescription Drug Wholesale Distributor
Advisory Council is established within the department. The council
is composed of five members appointed by the commissioner of state
health services as follows:
(1) three persons employed by different wholesale
distributors that are licensed under this subchapter and that are
not manufacturers;
(2) one person employed by a drug manufacturer; and
(3) one pharmacist.
(b) Members of the council serve staggered four-year terms
and serve without compensation.
(c) The council shall meet at least once each quarter and
shall annually elect a presiding officer and assistant presiding
officer from among its members.
(d) The department shall provide staff for the council.
(e) The council is not subject to Chapter 2110, Government
Code.
(f) The council shall:
(1) advise the department regarding proposed rules
that would affect the distribution of prescription drugs; and
(2) make recommendations to the department regarding
practical measures and procedures that may be implemented to
improve the integrity of the prescription drug distribution system
and protect the public health.
Sec. 431.413. CRIMINAL PENALTIES. (a) A person commits an
offense if the person knowingly tampers with, counterfeits,
adulterates, misbrands, or diverts a prescription drug product. An
offense under this subsection is a felony of the third degree.
(b) A person commits an offense if the person knowingly
purchases, transfers, sells, or distributes prescription drugs
from or to persons not authorized to possess the prescription
drugs. An offense under this subsection is a felony of the third
degree.
(c) A person commits an offense if the person knowingly
purchases, transfers, sells, or distributes prescription drugs
that have been tampered with, counterfeited, adulterated,
misbranded, or diverted. An offense under this subsection is a
felony of the third degree.
(d) A person commits an offense if the person knowingly
forges, counterfeits, or tampers with any pedigree documentation or
other transactional documentation associated with the purchase,
transfer, delivery, or sale of prescription drugs that is required
by federal or state law. An offense under this subsection is a
felony of the third degree.
(e) If conduct constituting an offense under this section
also constitutes an offense under another section of this chapter,
the person may be prosecuted under either section or both sections.
Sec. 431.414. PEDIGREE. (a) A person who is engaged in the
wholesale distribution of a prescription drug subject to this
chapter and who, except as provided by Subsection (b), is not the
manufacturer or an authorized distributor of record for the drug
shall provide to each wholesale distributor of the drug, including
with each distribution to an authorized distributor of record or to
a retail pharmacy, before the sale is made to the wholesale
distributor, a statement or record that:
(1) identifies by date each previous sale of the drug
starting with the last authorized distributor of record or the
manufacturer if the drug has not been purchased previously by an
authorized distributor of record;
(2) identifies the proprietary and established name of
the drug;
(3) identifies the dosage, container size, number of
containers, and lot or control number of the drug; and
(4) identifies the business name and address of all
parties identified in the statement.
(b) A repackager or a manufacturer that repackages a drug
subject to this subchapter and that is not an authorized
distributor of record must comply with Subsection (a).
(c) Notwithstanding Subsection (a), each person who is
engaged in the wholesale distribution of a specified drug and who
did not purchase the specified drug directly from the manufacturer
must provide to each wholesale distributor of the specified drug,
including with each distribution to an authorized distributor of
record or to a retail pharmacy, a statement or record that:
(1) identifies by date each previous sale of the
specific unit of specified drug back to the manufacturer of the
specified drug;
(2) identifies the proprietary and established name of
the drug;
(3) identifies the dosage, container size, number of
containers, and lot or control number of the specific unit of the
specified drug; and
(4) identifies the business name and address of all
parties identified in the statement.
(d) For purposes of this section, "specified drug" means a
prescription drug on a national list of prescription drugs
considered to be potential targets for adulteration,
counterfeiting, or diversion compiled by a national drug advisory
coalition in conjunction with the United States Food and Drug
Administration and other stakeholders, including wholesale
distributors, manufacturers, pharmacies, and appropriate state
government agencies responsible for regulating the sale or
distribution of prescription drugs and approved by the executive
commissioner of the Health and Human Services Commission for use
under this section. The department shall notify and provide
wholesale distributors with the national list of specified drugs as
prescription drugs are added to or removed from the list.
(e) The department shall oversee the development of an
effective, unique electronic product identification tracking
system for drugs subject to this subchapter to be implemented by
manufacturers, repackagers, pharmacies, and wholesale distributors
of drug products. The system must be designed to deter and detect
counterfeiting and to provide a means for prescription drug product
manufacturers, repackagers, distributors, and pharmacies to
authenticate the product. The tracking system must be in place by
December 31, 2010.
(f) Notwithstanding any other provision of this section,
once the tracking system required under Subsection (e) is in place,
the executive commissioner of the Health and Human Services
Commission shall adopt rules to replace the requirements of
Subsections (a)-(e). The tracking system may only be considered as
readily available and in place on or after the time a standardized
system with the capacity for use on a wide scale across the entire
health care industry, which includes manufacturers, wholesale
distributors, and pharmacies, is available.
Sec. 431.415. DUE DILIGENCE REVIEW BY PURCHASERS. (a)
Before purchasing a prescription drug from another wholesale
distributor, the purchasing wholesale distributor shall obtain the
following information from the selling wholesale distributor:
(1) a listing of the states the selling wholesale
distributor is domiciled in and shipping drugs into and copies of
all current state or federal regulatory licenses or registrations
that authorize the selling wholesale distributor to purchase,
possess, and distribute prescription drugs;
(2) the selling wholesale distributor's most recent
facility inspection report;
(3) information regarding general and product
liability insurance the selling wholesale distributor maintains;
(4) a list of all corporate officers;
(5) a list of all owners of greater than 10 percent of
the selling wholesale distributor, unless it is a publicly held
company;
(6) if the selling wholesale distributor claims to be
an authorized distributor of record, a written statement from the
distributor stating that it is an authorized distributor of record
and the basis on which that status was given;
(7) a list of all disciplinary actions by a state or
federal agency against the selling wholesale distributor, as well
as principals, owners of, or officers over the last seven years, or,
if the distributor has not been licensed for seven years, since the
distributor was first licensed;
(8) a description, including the address, dimensions,
and other relevant information, of each facility or warehouse the
selling wholesale distributor uses for drug storage and
distribution;
(9) a description and listing of all drug import and
export activities of the selling wholesale distributor;
(10) a description of the process the selling
wholesale distributor uses to validate and certify its suppliers
and purchases, including the supplier's status as an authorized
distributor of record; and
(11) a description of the selling wholesale
distributor's systems and procedures for prompt reporting to
appropriate state and federal authorities and manufacturers any
suspected counterfeit, stolen, or otherwise unlawful prescription
drug products or buyers or sellers of counterfeit, stolen, or
otherwise unlawful prescription drug products.
(b) A wholesale distributor may rely on the department's
most recent inspection report of the selling wholesale distributor
to satisfy the requirement of this section. The department on
request shall provide a purchasing wholesale distributor with
documentation demonstrating that the selling wholesale
distributor's inspection was satisfactory.
(c) If the department fails to conduct a physical inspection
of the selling wholesale distributor as required under Section
431.409, the purchasing wholesale distributor shall, before the
date of an initial purchase of any drug from that selling wholesale
distributor and at least once every three years after that date,
inspect the selling wholesale distributor's licensed establishment
in order to document that it has in place policies and procedures
relating to the distribution of drugs, the appropriate
temperature-controlled environment for drugs requiring temperature
control, an alarm system, appropriate access restrictions, and
procedures to ensure that records related to the wholesale
distribution of prescription drugs are maintained as required by
law.
SECTION 2. Subchapter I, Chapter 431, Health and Safety
Code, is repealed.
SECTION 3. (a) Not later than June 1, 2006, the executive
commissioner of the Health and Human Services Commission shall
adopt the rules necessary and the Department of State Health
Services shall develop the application form and procedures
necessary to implement Subchapter N, Chapter 431, Health and Safety
Code, as added by this Act.
(b) A wholesale drug distributor is not required to obtain a
license under Subchapter N, Chapter 431, Health and Safety Code, or
comply with the requirements of that subchapter or the rules
adopted under that subchapter before September 1, 2006.
SECTION 4. The change in law made by this Act applies only
to an offense committed on or after September 1, 2006. An offense
committed before that date is covered by the law in effect when the
offense was committed, and the former law is continued in effect for
that purpose. For purposes of this section, an offense was
committed before September 1, 2006, if any element of the offense
was committed before that date.
SECTION 5. (a) Except as provided by Subsection (b) of this
section, this Act takes effect September 1, 2005.
(b) Section 2 of this Act and Section 431.413, Health and
Safety Code, as added by this Act, take effect September 1, 2006.