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67720 Federal Register / Vol. 64, No. 232 / Friday, December 3, 1999 / Rules and Regulations

ranging from 3 to 8 years on which thevarious body system listings would nolonger be effective unless extended bythe Secretary of Health and HumanServices or revised and promulgatedagain. Effective March 31, 1995, theauthority to issue regulations wastransferred to the Commissioner ofSocial Security by section 102 of PublicLaw 103–296, the Social SecurityIndependence and ProgramImprovements Act of 1994.

In this final rule, we are extending thedates on which several body systemlistings will no longer be effective toJuly 2, 2001. These body systems are:Cardiovascular System (4.00 and

104.00).Digestive System (5.00 and 105.00).Genito-Urinary System (6.00 and

106.00).We last extended the dates on which

these body system listings would nolonger be effective in final rulespublished as follows:June 5, 1997 (62 FR 30746): Digestive

System and Genito-Urinary System.January 30, 1998 (63 FR 4570):

Cardiovascular System.We believe that the requirements in

these listings are still valid for ourprogram purposes. Specifically, if wefind that an individual has animpairment that meets or is medicallyequivalent in severity to an impairmentin the Listings or functionallyequivalent to the Listings in SSI claimsbased on disability filed by individualsunder age 18 and also meets thestatutory duration requirement, we willfind that the individual is disabled atthe third step of the sequentialevaluation process. We are extendingthese dates because we do not expect todevelop revised listings criteria for thesebody systems by the expiration datescurrently shown in the regulations.However, we are reviewing the listingsand we plan to publish proposed andfinal rules over the course of the nexttwo years.

Regulatory Procedures

Justification for Final Rule

Pursuant to section 702(a)(5) of theSocial Security Act, 42 U.S.C. 902(a)(5),as amended by section 102 of PublicLaw 103–296, SSA follows theAdministrative Procedure Act (APA)rulemaking procedures specified in 5U.S.C. 553 in the development of itsregulations. The APA providesexceptions to its notice and publiccomment procedures when an agencyfinds there is good cause for dispensingwith such procedures on the basis thatthey are impracticable, unnecessary, or

contrary to the public interest. We havedetermined that, under 5 U.S.C.553(b)(B), good cause exists fordispensing with the notice and publiccomment procedures in this case. Goodcause exists because this regulation onlyextends the date on which these bodysystem listings will no longer beeffective. It makes no substantivechanges to those listings. The currentregulations expressly provide thatlistings may be extended, as well asrevised and promulgated again.Therefore, opportunity for priorcomment is unnecessary, and we areissuing this regulation as a final rule.

In addition, we find good cause fordispensing with the 30-day delay in theeffective date of a substantive ruleprovided by 5 U.S.C. 553(d). Asexplained above, we are not making anysubstantive changes in these bodysystem listings. However, without anextension of the expiration dates forthese listings, we will lack regulatoryguidelines for assessing impairments inthese body systems at the third step ofthe sequential evaluation process afterthe current expiration dates of theselistings. In order to ensure that wecontinue to have regulatory criteria forassessing impairments under theselistings, we find that it is in the publicinterest to make this rule effective uponpublication.

Executive Order 12866

We have consulted with the Office ofManagement and Budget (OMB) anddetermined that this final rule does notmeet the criteria for a significantregulatory action under Executive Order12866. Thus, it was not subject to OMBreview. We have also determined thatthis final rule meets the plain languagerequirement of Executive Order 12866and the President’s memorandum ofJune 1, 1998 (63 FR 31885).

Regulatory Flexibility Act

We certify that this final regulationwill not have a significant economicimpact on a substantial number of smallentities. Therefore, a regulatoryflexibility analysis as provided in theRegulatory Flexibility Act, as amended,is not required.

Paperwork Reduction Act

This final regulation imposes noreporting/recordkeeping requirementsnecessitating clearance by OMB.(Catalog of Federal Domestic AssistanceProgram Nos. 96.001, Social Security-Disability Insurance; 96.002, Social Security-Retirement Insurance; 96.004, SocialSecurity-Survivors Insurance; 96.006,Supplemental Security Income)

List of Subjects in 20 CFR Part 404Administrative practice and

procedure, Blind, Disability benefits,Old-Age, Survivors and DisabilityInsurance, Reporting and recordkeepingrequirements, Social Security.

Dated: November 24, 1999.Kenneth S. Apfel,Commissioner of Social Security.

For the reasons set forth in thepreamble, part 404, subpart P, chapterIII of title 20 of the Code of FederalRegulations is amended as set forthbelow.

PART 404—FEDERAL OLD-AGE,SURVIVORS AND DISABILITYINSURANCE (1950- )

Subpart P—[Amended]

1. The authority citation for subpart Pof part 404 continues to read as follows:

Authority: Secs. 202, 205(a), (b), and (d)–(h), 216(i), 221(a) and (i), 222(c), 223, 225,and 702(a)(5) of the Social Security Act (42U.S.C. 402, 405(a), (b), and (d)–(h), 416(i),421(a) and (i), 422(c), 423, 425, and902(a)(5)); sec. 211(b), Pub. L. 104–193, 110Stat. 2105, 2189.

2. Appendix 1 to subpart P of part 404is amended by revising items 5, 6, and7 of the introductory text before Part Ato read as follows:

Appendix 1 to Subpart P—Listing ofImpairments

* * * * *5. Cardiovascular System (4.00 and 104.00):

July 2, 2001.6. Digestive System (5.00 and 105.00): July 2,

2001.7. Genito-Urinary System (6.00 and 106.00):

July 2, 2001.

* * * * *[FR Doc. 99–31322 Filed 12–2–99; 8:45 am]BILLING CODE 4191–02–P

DEPARTMENT OF HEALTH ANDHUMAN 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 of1987; Prescription Drug Amendmentsof 1992; Policies, Requirements, andAdministrative Procedures

AGENCY: Food and Drug Administration,HHS.ACTION: Final rule.

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

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67721Federal Register / Vol. 64, No. 232 / Friday, December 3, 1999 / Rules and Regulations

rule to set forth procedures andrequirements implementing thePrescription Drug Marketing Act of 1987(PDMA), as modified by the PrescriptionDrug Amendments of 1992 (PDA) andthe FDA Modernization Act of 1997 (theModernization Act). The final rule setsforth requirements for the reimportationand wholesale distribution ofprescription drugs; the sale, purchase,or trade of, or the offer to sell, purchase,or trade, prescription drugs that werepurchased by hospitals or health careentities, or donated to charitableorganizations; and the distribution ofprescription drug samples. FDA is alsoamending certain sections of theregulations entitled ‘‘Guidelines forState Licensing of WholesalePrescription Drug Distributors’’ to makethem consistent with this finalregulation.DATES: Submit written comments on thecollection of information provisions byFebruary 1, 2000. This regulation iseffective December 4, 2000.ADDRESSES: Submit written commentson the collection of information to theDockets Management Branch (HFA–305), Food and Drug Administration,5630 Fishers Lane, rm. 1061, Rockville,MD 20857. All comments should beidentified with the docket numberfound in brackets in the heading of thisdocument.FOR FURTHER INFORMATION CONTACT:

For information on the PDMA andregulations: Lee D. Korb, Center forDrug Evaluation and Research(HFD–7), Food and DrugAdministration, 5600 Fishers Lane,Rockville, MD 20857, 301–594–2041, e-mail address via Internet:‘‘[email protected]’’.

For information on compliance withand enforcement of the regulations:Margaret M. O’Rourke, Center forDrug Evaluation and Research(HFD–330), Food and DrugAdministration, 7500 Standish Pl.,Rockville, MD 20855, 301–594–0101, e-mail address via Internet:‘‘[email protected]’’.

For information on biologics: StevenF. Falter, Center for BiologicsEvaluation and Research (HFM–17),Food and Drug Administration,1401 Rockville Pike, Rockville, MD20852, 301–827–6210, e-mailaddress via Internet:‘‘[email protected]’’.

SUPPLEMENTARY INFORMATION:

I. Background

PDMA (Public Law 100–293) wasenacted on April 22, 1988, and wasmodified 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, and801 of the Federal Food, Drug, andCosmetic Act (the act) (21 U.S.C. 331,333, 353, 381) to establish restrictionsand requirements relating to variousaspects of human prescription drugmarketing and distribution. Amongother things, PDMA: (1) Banned thesale, purchase, or trade of (or offer tosell, purchase, or trade) drug samplesand drug coupons; (2) restrictedreimportation of prescription drugs tothe manufacturer of the drug product orfor emergency medical care; (3)established requirements for drugsample distribution and the storage andhandling of drug samples; (4) requiredwholesale distributors of prescriptiondrugs to be State licensed and requiredFDA to establish minimumrequirements for State licensingschemes; (5) established requirementsfor wholesale distribution ofprescription drugs by unauthorizeddistributors; (6) prohibited, with certainexceptions, the sale, purchase, or trade(or offer to sell, purchase, or trade) ofprescription drugs that were purchasedby hospitals or health care entities, ordonated or supplied at a reduced priceto charities; and (7) established criminaland civil penalties for PDMA violations.

In the Federal Register of September13, 1988 (53 FR 35325), FDA publisheda proposed rule containing minimumrequirements for State licensing ofwholesale drug distributors. The finalrule on State licensing requirements(part 205 (21 CFR part 205)) waspublished in the Federal Register ofSeptember 14, 1990 (55 FR 38012)(hereinafter referred to as the Statelicensing guideline final rule). The Statelicensing regulations require that allwholesale distributors be State licensed,establish minimum qualifications forlicensees, and set forth minimumrequirements for the storage andhandling of prescription drugs and forthe establishment and maintenance ofrecords of drug distribution bywholesale distributors.

In the Federal Register of March 14,1994 (59 FR 11842), FDA issued aproposed rule to set forth agencypolicies and requirements for thosesections of PDMA not related to Statelicensing of wholesale distributors(hereinafter referred to as the March1994 proposal). The March 1994proposal contained provisions onprescription drug reimportation,wholesale distribution of prescriptiondrugs by unauthorized distributors, theresale of prescription drugs by hospitals,health care entities, and charitableinstitutions, and distribution ofprescription drug samples. The March

1994 proposal called for the submissionof comments by May 30, 1994. At therequest of certain individuals, thecomment period was extended, bynotice in the Federal Register of July 15,1994 (59 FR 36107), to August 15, 1994.After careful consideration of thecomments, the agency has revised andfinalized the March 1994 proposal. Adiscussion of significant issues, thecomments received on the proposal, andthe agency’s responses to the commentsfollows.

II. Significant Issues and Revisions tothe Proposal

A. Reimportation of Drugs ComposedWholly or Partly of Insulin

On November 21, 1997, theModernization Act (Public Law 105–115) was enacted. Section 125(a)(2)(D)of the Modernization Act amendedsection 801(d)(1) of the act to prohibitthe reimportation of a drug composedwholly or partly of insulin, except bythe manufacturer of the drug or foremergency care. In accordance with therevised statutory requirement, theagency has revised proposed §§ 203.10and 203.12 (21 CFR 203.10 and 203.12)in the final rule to include insulin-containing drugs.

B. Blood and Blood ComponentsIntended for Transfusion

In the State licensing guideline finalrule, FDA excluded from the definitionof ‘‘wholesale distribution’’ the sale,purchase, or trade of blood and bloodcomponents intended for transfusion(see § 205.3(f)(8)). Thus, personsengaged in the distribution of blood orblood components intended fortransfusion are not required to be Statelicensed wholesale prescription drugdistributors or to comply with other part205 requirements.

Concurrent with the State licensingguideline final rule, FDA published aproposed rule entitled ‘‘Applicability toBlood and Blood Components Intendedfor Transfusion; Guidelines for StateLicensing of Wholesale PrescriptionDrug Distributors’’ (55 FR 38027)(hereinafter referred to as the September1990 proposal). In that proposal, FDA:(1) Tentatively concluded that PDMAdoes not apply to the distribution ofblood and blood components intendedfor transfusion, (2) set forth its rationalefor its tentative conclusion, and (3)solicited comments. The agency statedthat, if comments persuaded FDA thatPDMA should be interpreted asapplying to the distribution of bloodand blood components intended fortransfusion, FDA would amend theState licensing guideline final rule.

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Comments received on the proposalsupported the exclusion, however, andno action has been taken by the agencyto amend part 205.

FDA again tentatively concluded inthe March 1994 proposal (59 FR 11842at 11844) that the restrictions in and therequirements of PDMA do not apply tothe distribution of blood and bloodcomponents intended for transfusion.Proposed §§ 203.1 and 203.3(v) (21 CFR203.1 and 203.3(v)) specified that bloodand blood components intended fortransfusion are outside the scope ofPDMA, and do not constitute‘‘prescription drugs’’ for the purposes ofpart 203 (21 CFR part 203). In addition,proposed § 203.22(g) specificallyexcluded the sale, purchase, or trade of,or offer to sell, purchase, or trade bloodor blood components intended fortransfusion from the sales restrictions inproposed § 203.20. No commentsopposing the proposed sections werereceived.

Based on the rationale set forth in theSeptember 1990 proposal, the agencyhas made a final determination thatblood and blood components intendedfor transfusion should be excluded fromall of the restrictions in and therequirements of PDMA. Accordingly,proposed §§ 203.1, 203.3(v), and203.22(g) are being finalized, and theSeptember 1990 proposal (Docket No.88N–0258)is not being adopted.

As discussed in section III.B of thisdocument in conjunction withcomments received on the proposedrule, blood and blood componentsintended for transfusion include wholeblood, red blood cells, plasma, freshfrozen plasma, cryoprecipitated AHF,and platelets. Blood derivatives such asFactor IX, Factor IX Complex, andimmune globulin, as well asrecombinant products regulated asbiological products, are not blood orblood components intended fortransfusion and, therefore, are subject tothe requirements and restrictions ofPDMA.

C. Medical GasesIn the March 1994 proposal (59 FR

11842 at 11844), the agency clarifiedthat oxygen, USP (United StatesPharmacopeia), is a prescription drugsubject to section 503(b) of the act and,therefore, within the scope of PDMAand the proposed regulations. Since thepublication of the March 1994 proposal,questions have been raised about theapplicability of PDMA to medical gasesgenerally.

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 prescriptiondrugs within the scope of PDMA andthe State licensing guideline final rule.Therefore, under § 205.4, all personsengaged in the wholesale distribution ofmedical gases must be State licensed.This includes all air separation plantsand units, suppliers, welding firms,durable medical equipment suppliers,and home respiratory care companiesthat distribute medical gases, except forthose entities that exclusively distributemedical gases to patients under a validprescription (see § 205.3(f)(6)). Inaddition, distributors of medical gasesare subject to all other restrictions andrequirements under PDMA and thisfinal rule, including the requirementunder § 203.50 to provide a drug originstatement and the requirements for drugsample distribution. The agency notes,however, that because most distributorsof medical gases qualify asmanufacturers under § 203.3(s), therequirement to provide a drug originstatement will generally not apply tosuch distributors. In addition, theagency is unaware of the practice ofproviding samples of medical gases tolicensed practitioners. Therefore, thedrug sample provisions of PDMA andthis final rule should have no practicalapplicability to the medical gasindustry.

D. Revision to Proposed 203.3(e)

In proposed § 203.3(e), the term ‘‘bulkdrug substance’’ was defined to mean:

Any drug or drug component furnished inother than finished dosage form that isintended to furnish pharmacological activityor other direct effect in the diagnosis, cure,mitigation, treatment, or prevention ofdisease, or to affect the structure or functionof the body of humans.In § 207.3(a)(4) (21 CFR 207.3(a)(4), theterm is defined to mean:

Any substance that is represented for usein a drug and that, when used in themanufacturing, processing, or packaging of adrug, becomes an active ingredient or afinished dosage form of the drug, but theterm does not include intermediates used inthe synthesis of such substances.Although the definitions are similar, theagency has decided that it is appropriateto use identical definitions of bulk drugsubstance throughout the regulations.Accordingly, the final rule adopts thedefinition of bulk drug substance usedin § 207.3(a)(4).

E. Revisions to Proposed § 203.31(d)

For drug samples delivered byrepresentatives, PDMA provides that amanufacturer or distributor is requiredto conduct a complete and accurateinventory of all drug samples in thepossession of representatives at leastannually (21 U.S.C. 353(d)(3)(C)). FDA

proposed in § 203.31(d) to require thatmanufacturers and distributors conducta ‘‘complete and accurate drug sampleinventory’’ at least annually of all drugsamples in the possession or control ofeach manufacturer’s and distributor’srepresentatives using ‘‘generallyaccepted inventory practices.’’ Inaddition, FDA proposed to require thatthe results of the inventory be ‘‘recordedin an inventory record andreconciliation report.’’

Under proposed § 203.31(d)(1), theinventory record would identify all drugsamples by the proprietary orestablished name, dosage strength, andnumber of sample units in stock. Underproposed § 203.31(d)(2), thereconciliation report would contain areport of the physical count of the mostrecently completed prior inventory, arecord of each drug sample receivedsince the most recently completed priorinventory, a record of each drug sampledistributed since the most recentlycompleted prior inventory, and anexplanation for any significant loss.Under proposed § 203.31(d)(3), theinventory would be conducted, and theinventory and reconciliation reportswould be prepared by persons otherthan the representatives beinginventoried or supervisors or managersin their department, division, or branch,or in their direct line of supervision orcommand.

The agency has revised proposed§ 203.31(d) in the final rule to clarifycertain requirements. The introductoryparagraph of § 203.31(d) has beenrevised to specify that a ‘‘physicalinventory’’ of drug samples is required,rather than an inventory. The term‘‘physical inventory’’ has been added tomore clearly distinguish the inventoryfrom the reconciliation process and toclarify that the required inventoryconsists of a physical count of stock onhand. The proposed requirement thatthe inventory be conducted ‘‘usinggenerally accepted inventory practices’’has been deleted in the final rulebecause the agency has determined thatthere are no generally recognizedstandards for conducting a physicalcount. The final rule has also beenrevised to clarify that the results of thephysical count must be recorded in theinventory record, not in the inventoryrecord and reconciliation report. Theproposed requirements for the inventoryrecord remain unchanged.

In contrast to the relatively simpletask of conducting a physical count, thereconciliation process involvescomparing the latest inventory to themost recent prior inventory and takinginto account drug samples acquired anddistributed in the interim, to determine



whether sample diversion by arepresentative has occurred. Asdiscussed by the agency in the March1994 proposal, Congress’ purpose inenacting the inventory requirement wasto facilitate detection of diversionactivity, and conducting a physicalinventory without reconciling thatinventory with the most recent priorinventory would not achieve this goal(59 FR 11842 at 11849). Thus, theintroductory paragraph of proposed§ 203.31(d) has been revised in the finalrule to clarify that, in addition to aphysical inventory, manufacturers anddistributors are required to reconcile theresults of the physical inventory withthe most recently completed priorphysical inventory and to document thisprocess in a reconciliation report.

The agency has revised proposed§ 203.31(d)(2)(i) in the final rule torequire that the reconciliation reportinclude the inventory record for themost recently completed priorinventory. This is the same as therequirement in proposed§ 203.31(d)(2)(i) for a ‘‘report of thephysical count of the most recentlycompleted prior inventory,’’ but theterminology is clearer and consistentwith the terminology used in§ 203.31(d)(1).

Proposed § 203.31(d)(2)(iii) has beenrevised in the final rule to clarify thetypes of transactions that the agencyconsiders to be ‘‘distributions.’’ Thisclarification is necessary because arepresentative’s stock of drug samplesmay be affected by various types ofdispositions other than distributions tohealth care practitioners or theirdesignees, and it is necessary that thereconciliation report reflect thesedifferent types of dispositions so that anaccurate assessment of potential drugdiversion activity can be made. Section203.31(d)(2)(iv), which requires a recordof drug sample thefts or significantlosses reported by the representativesince the most recently completed priorinventory, has been added for the samereason.

Section 203.31(d)(2)(v), whichrequires a summary record of theinformation contained in§ 203.31(d)(2)(ii) through (d)(2)(iv), hasbeen added in the final rule. Thesummary record will permitmanufacturers and authorizeddistributors of record and the agency toquickly review the information that isnecessary to conduct a reconciliationand thus will help to facilitate checkingthe accuracy of reconciliations.

Finally, as discussed in section III.E ofthis document in conjunction with thecomments, proposed § 203.31(d)(3) hasbeen substantially revised in the final

rule to eliminate the proposedrequirement that the inventory andreconciliation functions be conductedby persons other than the representativeor supervisors or managers in therepresentative’s department, division, orbranch, or in the representative’s directline of supervision. Instead,manufacturers and authorizeddistributors are required to takeappropriate internal control measures toguard against error and possible fraud inthe conduct of the physical inventoryand reconciliation, and in thepreparation of the inventory record andreconciliation report.

F. Elimination of § 203.31(f)Proposed § 203.31(f) has been

removed from the final rule. Theproposed section contained the samerequirement for a manufacturer orauthorized distributor to notify FDA ofany conviction of its representatives asproposed in § 203.37(c) and finalized inthe rulemaking.

G.Revisions to Proposed § 203.34Proposed § 203.34(b), (c), (d), and (g)

have been revised and renumbered inthe final rule as § 203.34(b)(1) through(b)(4). Proposed § 203.34(d) is beingfinalized as § 203.34(b)(1) and has beenrevised to clarify that a manufacturer orauthorized distributor must havewritten policies and proceduresdetailing its methodology forreconciling sample requests and receiptsand for determining if patterns ofnonresponse exist that may indicatesample diversion. In addition, writtenpolicies and procedures must detailhow a manufacturer or authorizeddistributor will initiate investigations orotherwise respond when patterns ofnonreturns of sample receipts are found.Proposed § 203.34(c) is being finalizedas § 203.34(b)(2) and has been revised tocover the preparation of thereconciliation report as well as theconduct of the physical inventory.Proposed § 203.34(b) is being finalizedas § 203.34(b)(3) and has been revised torequire manufacturers and distributorsto establish and adhere to writtenpolicies describing their administrativesystems for conducting random and for-cause audits of sales representatives.The necessity for such audits isdiscussed in conjunction withcomments on proposed § 203.31(d).

H. Charitable Donations of PrescriptionDrug Samples

In the preamble to the March 1994proposal (59 FR 11842 at 11853), theagency addressed the practice wherebylicensed practitioners donateprescription drug samples to charitable

institutions such as free clinics, nursinghomes, and other charitable health careentities for dispensing to patients or forfurther distribution to other domestic oroverseas charities. The agencyrecognized the importance of thispractice to the operations of suchinstitutions and to the goal of providingadequate medical care to patients inneed, but also expressed concern thatthe practice may make enforcement ofthe sample distribution provisions ofPDMA difficult and provide an avenuefor drug diversion. The agencytentatively concluded that charitabledonations of drug samples ispermissible under PDMA, provided thata system of controls is in place toprovide accountability and oversightover such donations and to minimizethe potential for drug diversion. Theagency proposed a system of drugsample donation controls in § 203.39.

Although no comments weresubmitted concerning the provisions in§ 203.39, the agency has determined thatsome of the proposed requirements areburdensome and unnecessary to ensureaccountability and oversight overdonated drug samples. Accordingly, theagency has revised the proposedrequirements as follows.

Proposed § 203.39(a)(1) and (a)(2),which required that charitableinstitutions that receive drug sampledonations be licensed by the State, ifrequired by State law, and enrolled withFDA, have been eliminated. Regardingthe elimination of proposed§ 203.39(a)(1), the agency notes thatcharitable institutions are still requiredto comply with applicable State law intheir operations. However, the agencybelieves that it is appropriate to deferlicensure or other State requirements tothe States. Proposed § 203.39(b)(1),which required charitable institutions toprovide documentation demonstratingthat their agents are authorized to solicitor receive drug sample donations, andproposed § 203.39(b)(2), which requiredcharitable institutions to maintain a listof agents authorized to solicit or receivedrug sample donations, have also beeneliminated.

Proposed § 203.39(b)(8), whichrequired the donor of a drug sample toprepare a donation record for drugsamples delivered by mail or commoncarrier, has been eliminated. Under§ 203.39(e) of the final rule, thecharitable institution to which a drugsample is donated must prepare adonation record for the sampleregardless of the manner of delivery ofthe drug sample and must retain therecord for at least 3 years. Proposed§ 203.39(b)(9) has been revised torequire that the donation record contain



only the name, address, and telephonenumber of the donating licensedpractitioner or charitable institution; themanufacturer, brand name, quantity,and lot or control number of the drugsample donated; and the date of thedonation.

Proposed § 203.39(b)(11) has beenrevised to eliminate the proposedrequirement that the inventory ofdonated drug samples in the possessionof a charitable institution be conductedusing independent inventory personnel.Proposed § 203.39(b)(12), whichrequired that a charitable institutionprovide written certification to thedonating party that it is in compliancewith part 203, has been eliminated inthe final rule. Finally, proposed§ 203.39(c) has been eliminated, but itsrequirements have been incorporatedinto the introductory paragraph of§ 203.39 such that charitable institutionsmay donate donated drug samples toother charitable institutions as long as§ 203.39 is followed.

I. Charitable Donations of PrescriptionDrugs Generally

Since the publication of the March1994 proposal, the agency has receivedrequests that raise questions aboutwhether and how PDMA should beapplied to charitable donations ofprescription drugs generally, not justdrug samples. Nonsample drug productsmay be donated to charitableinstitutions from many differentsources, including manufacturers,wholesale distributors, retailpharmacies, for profit and nonprofithospitals and health care entities, othercharitable groups, and reversedistributors (i.e., wholesale distributorsthat handle returns). In addition, FDA isaware that drug salvagers may also be asource of donations.

The donation of nonsample drugproducts to charitable institutions raisessimilar concerns about the quality of thedrugs being donated and potential drugdiversion as the donation of drugsamples. Moreover, such donationsconstitute distribution of a prescriptiondrug to other than a consumer or patientand therefore could be considered‘‘wholesale distribution’’ under section503(e)(4)(B) of the act. Although theagency is not establishing controls fornonsample prescription drug donationsat this time, the agency is carefullyconsidering the relevant issues and mayin the future propose an approach todrug donations that encompasses bothprescription drug samples andnonsample prescription drug products.

J. Creation and Maintenance ofRequired Forms, Reports, Records, andSignatures

Proposed § 203.60 set forth standardsfor the creation and maintenance ofsample request and receipt forms,reports, records, and other documentsrequired under PDMA and part 203.Proposed § 203.60(a) permitted anyrequired document to be created eitheron paper or on electronic media.Proposed § 203.60(b) permitted anyrequired document created on paper tobe maintained on paper or byphotographic or electronic imaging,provided the security andauthentication requirements in§ 203.60(d) were met. Proposed§ 203.60(c) permitted requireddocuments created electronically to bestored using computer technologies,provided the requirements in§ 203.60(d) were met. Proposed§ 203.60(d) provided that requireddocuments and signatures must becreated, maintained, or transmitted in aform providing reasonable assurance ofbeing: (1) Resistant to tampering,revision, modification, fraud,unauthorized use, or alteration; (2)preserved in accessible and retrievablefashion; and (3) visible or readily madevisible for purposes of review byregulated industry and FDA.

In addition to the requirements inproposed § 203.60, proposed § 203.61permitted signatures on required forms,reports, and records to be made bymeans of a writing or markinginstrument such as a pen or indeliblepencil. The section also permittedsignatures to be made by electronicstylus on an electronic pad or by otherelectronic medium, provided thesecurity requirements in § 203.61(b)were met.

In the Federal Register of March 20,1997 (62 FR 13430), the agency issuedfinal regulations on electronic recordsand electronic signatures in part 11 (21CFR part 11). Because of the issuance ofthose regulations and the applicabilityof part 11 to part 203 document andsignature requirements, the March 1994proposal has been substantially revised.Under part 11, electronic records,electronic signatures, and handwrittensignatures executed to electronicrecords that meet the requirements ofthat part may be used to meetrequirements to create and maintainrecords and signatures under the act andagency regulations, unless specificallyexcepted by future regulations.Therefore, sections of the March 1994proposal setting forth requirementsrelating to creation and maintenance ofelectronic records, electronic signatures,

and handwritten signatures, as thoseterms are defined in part 11, have beenrevised or eliminated in the final rule.

Proposed § 203.60(a) has been deletedand replaced in the final rule by revised§ 203.60(a)(1), (a)(2), and (a)(3). Revised§ 203.60(a)(1) states that electronicrecords, electronic signatures, andhandwritten signatures executed toelectronic records may be used in lieuof paper records and handwrittensignatures executed on paper to meetany of the record and signaturerequirements of PDMA or part 203,provided that the requirements of part11 are met. Although electronicsignatures, electronic records, andhandwritten signatures executed onelectronic records would be permittedto meet PDMA and part 203 records andsignature requirements under theprovisions of part 11 without furtherrulemaking in part 203 (see, e.g., § 11.1),this section has been included in thefinal rule for added clarity. The finalrule also defines the terms electronicrecord, electronic signature, andhandwritten signature in revised§ 203.3(k), (l), and (p), respectively, tohave the same meaning that these termshave in § 11.3(b)(6), (b)(7), and (b)(8).

Revised § 203.60(a)(2) permitscombinations of paper records andelectronic records, electronic recordsand handwritten signatures executed onpaper, and paper records and electronicsignatures or handwritten signaturesexecuted to electronic records to beused to meet PDMA record andsignature requirements, provided thatthe requirements of part 11 are met forthe electronic component. In addition, areasonably secure link must existbetween the paper-based and electroniccomponents to ensure that thecombined records and signatures aretrustworthy and reliable and the signercannot readily repudiate the signedrecord as not genuine. A reasonablysecure link could consist of a physicallink between the electronic and paper-based records (i.e., where the paper-based record(s) and a computer diskcontaining the electronic record(s) aresealed together in a container and achain of controlled custody for thesealed container is established) or atechnology-based link. The agency isplanning to issue in the future furtherguidance on technology-based links inconjunction with its implementation ofpart 11.

Revised § 203.60(a)(3) clarifies thatthe ‘‘record and signature requirements’’to which § 203.60(a)(1) and (a)(2) referinclude drug sample request and receiptforms, reports, records, and any othertypes of documents and their associated



1 Under the proposed rule, delivery of drugsamples would constitute drug sample distribution.Under section 503(d) of the act, only a manufactureror authorized distributor of record may distributedrug samples.

signatures required by PDMA or part203.

Because part 11 does not apply to thephotographic imaging of paper records,proposed § 203.60(b) has been retainedin the final rule. The section has beenrevised, however, to clarify thatelectronic scanning of paper recordsinto a computer creates an electronicrecord that is subject to therequirements of part 11. The securityand authentication requirements inproposed § 203.60(d) have beenrenumbered in the final rule as§ 203.60(c) and revised such that therequirements in the section apply onlyto documents and signatures that arecreated on paper and that aremaintained by photographic imaging ortransmitted electronically. Minorrevisions have also been made to thesecurity and authenticationrequirements in revised § 203.60(d)(3).

The requirements for maintenance ofdocuments created by electronic meansin proposed § 203.60(c) and thesignature requirements in proposed§ 203.61 have been superseded by part11 requirements. Therefore, thesesections have been deleted in theirentirety in the final rule. Proposed§ 203.60(e) and (f) have beenrenumbered in the final rule as§ 203.60(d) and (e).

K. Implementation of the Final Rule

The provisions in the final rule willbecome effective 1 year after the date ofpublication of the final rule in theFederal Register. The agency isproviding this period to give industrysufficient time to implement systems forprescription drug sample distributionand wholesale distribution that are incompliance with the final rule.

III. Comments on the Proposed Rule

A. General Comments

FDA received 56 comments on theMarch 1994 proposal from prescriptiondrug manufacturers, industryorganizations, professional associationsand organizations, law enforcementagencies, and others. Although most ofthe comments addressed only specificprovisions of the rule, a few commentedgenerally on the proposed rule, andthose comments were mixed. Forexample, one comment stated that it‘‘supports the controls on prescriptiondrug samples sought through thepassage of PDMA and feels that, ingeneral, the proposed rule is a positivestep in combating the market in divertedprescription drugs and ensuringconsumers that drug products continueto remain safe and effective.’’ Anothercomment, however, stated that

‘‘finalization of the proposed rule willcreate unnecessary additionaladministrative burdens for companiesand their sales representatives’’ and‘‘would not improve significantly theindustry’s ability to track sampledistribution and reduce the possibilityof diversion of samples.’’

A large number of commentsaddressed the provisions of theproposed rule relating to sampledistribution. In fact, comments werereceived on almost all of the sections ofthe proposed rule dealing with sampledistribution. Most of these commentswere critical of the manner in which theagency proposed to implement thesample distribution requirementscontained in PDMA. In addition tocomments on sample distribution,comments were received on sections ofthe proposed rule relating toreimportation of prescription drugs,resales of prescription drugs purchasedby health care entities, recordkeepingand investigation requirements, andwholesale distribution.

Specific issues raised by thecomments and the agency’s responsesfollow.

B. DefinitionsBlood component. Proposed

§ 203.3(d) defined ‘‘blood component’’as ‘‘that part of a single-donor unit ofblood separated by physical ormechanical means.’’

1. One comment requestedclarification on whether various plasmaproducts and derivatives, includingantihemophilic factor, Factor IX, FactorIX Complex, and immune globulin IV,are considered blood components ordrugs. The comment also asked forclarification of whether the agencymakes a distinction between human andrecombinant products in decidingwhether to categorize a bloodcomponent preparation as a bloodcomponent or drug.

The agency advises that bloodcomponents, as defined in § 203.3(d) ofthe final rule, include red blood cells,plasma, fresh frozen plasma,cryoprecipitated AHF, and platelets.Antihemophilic Factor, Factor IXComplex, and immune globulinproducts are derivatives of blood, notblood components. Both bloodcomponents and blood derivatives areregulated as biologics under theauthority of the Public Health ServiceAct (the PHS Act) and are also drugsunder section 201(g)(1) of the act (21U.S.C. 321(g)(1)). Productsmanufactured through recombinanttechnology that mimic blood derivativesor other biological products are alsoregulated as biologics under the PHS

Act and are drugs under section201(g)(1) of the act. These products, likeblood derivatives, are not bloodcomponents.

Distribute. Proposed § 203.3(h)defined ‘‘distribute’’ to mean to sell,offer to sell, deliver, or offer to delivera drug to a recipient, except that theterm ‘‘distribute’’ does not include theproviding of a drug sample to a patientby:

(1) A practitioner licensed toprescribe such drug,

(2) A health care professional acting atthe direction and under the supervisionof such a practitioner, or

(3) The pharmacy of a hospital or ofanother health care entity that is actingat the direction of such a practitionerand that received such sample inaccordance with the act and regulations.

On its own initiative, the agency isrevising proposed § 203.3(h) in the finalrule to specify that the term ‘‘distribute’’does not include the delivery of drugsor offer to deliver drugs by a commoncarrier in the usual course of itsbusiness as a common carrier. Thisrevision is necessary to permit commoncarriers that deliver drug samples, orperform duties incidental to delivery(i.e., delivery verification) formanufacturers or authorized distributorsof record, to do so without beingrequired to be authorized distributors ofrecord.1 Such a requirement would beconfusing and inconsistent withlanguage in section 503(d) of the act,which distinguishes between sampledistribution and delivery by mail orcommon carrier. However, comarketers,fulfillment houses, and other entitiesthat perform some or all of the functionsassociated with sample distribution andpromotion that would otherwise beperformed by the drug manufacturer arenot covered by this exception. Thus,entities that create and maintainrequired forms, reports, and records;have their own sales forces andrepresentatives; solicit and fill requestsfor drug samples; or conduct other suchactivities are engaged in drug sampledistribution and must be authorizeddistributors of record.

Health care entity. Proposed§ 203.3(n) defined ‘‘health care entity’’as ‘‘any person that provides diagnostic,medical, surgical or dental treatment, orchronic or rehabilitative care, but doesnot include any retail pharmacy or anywholesale distributor. A person cannotsimultaneously be a ‘health care entity’



2 For example, the proposed definition of healthcare entity would not prevent a hospital, health careentity, or charity from purchasing blood derivativesand administering them to patients under a validprescription.

and a retail pharmacy or wholesaledistributor.’’

2. Several comments noted that,under the proposed definition of healthcare entity, full-service blood centersthat currently function both as healthcare entities and distributors of bloodplasma derivatives would not bepermitted to continue to operate in bothof these capacities. The commentsexpressed concern that the ability ofcommunity health care entities to obtainplasma derivatives would bedetrimentally affected if communityblood centers were prohibited fromdistributing them.

One comment explained that plasmaderivatives are unique prescriptiondrugs that are largely distributed outsidethe typical drug distribution network.The comment stated that, historically,blood centers and hospital blood bankshave provided plasma processing anddistribution services for their localcommunities. Although the processinghas become more complex and is nowdone largely by for-profit manufacturers,blood centers, hospital blood banks, andtransfusion services still act as finaldistributors of plasma derivatives. Thecomment said that this arrangementenables the health care providers whoreceive blood derivatives to use the‘‘expert consultative services’’ of theseentities.

Several comments stated that thesame reasons for excluding blood andblood components intended fortransfusion from PDMA’s salesrestrictions are applicable to bloodderivatives. The comments contendedthat there is no indication in thelegislative history that the types ofabuses that lead to the restrictions insection 503(c)(3) of the act are presentwith blood derivatives or that Congressintended the restrictions in section503(c)(3) of the act to apply to bloodderivatives.

The comments suggested ways inwhich the proposed rule could beamended to allow blood centers tocontinue to function as wholesaledistributors of plasma derivatives. Twocomments suggested specificallyexcluding blood banks, transfusionservices, and hospital blood banks fromthe prohibition against a health careentity simultaneously being a wholesaledistributor. Another commentrecommended that FDA eliminateentirely the prohibition against a healthcare entity simultaneously being awholesale distributor with aclarification in the preamble to the finalrule that health care entities engaging in‘‘sham’’ operations to avoid resaleprohibitions remain subject toenforcement of resale prohibitions, even

if licensed as a wholesaler. Onecomment suggested expanding thedefinition of ‘‘blood’’ or ‘‘bloodcomponents’’ to include plasmaderivatives.

The agency declines to revise thedefinition of health care entity orotherwise revise the proposed rule topermit health care entities to engage inthe wholesale distribution of bloodderivatives or other prescription drugproducts. The statutory restrictions insection 503(c)(3)(A) of the act prohibitthe sale, purchase, or trade of, or offerto sell, purchase, or trade prescriptiondrugs that are purchased by a public orprivate hospital or health care entity ordonated or supplied at a reduced priceto a charitable organization. Becauseblood derivatives are prescription drugsthat are neither blood nor bloodcomponents, a hospital or health careentity that purchases these productsfrom a manufacturer or distributor, or acharitable institution that receives theseproducts through a donation or at areduced price, may not sell or tradethese products except as permittedunder section 503(c)(3)(B) of the act and§ 203.22 of the agency’s regulations.2

The agency is unpersuaded by thecomments that blood derivativesshould, as a matter of public healthpolicy, be grouped with blood andblood components intended fortransfusion as products that Congressdid not intend to cover under PDMAgenerally, or under section 503(c)(3)(A)of the act specifically. In the September1990 proposal, the agency stated that ifPDMA and, in particular, PDMA’srestrictions on the resale of prescriptiondrugs were considered applicable toblood and blood components intendedfor transfusion, the result would be toseriously impede the present blooddistribution system and therebysubstantially interfere with, and reduce,the nation’s blood supply. Based largelyon this ‘‘untenable result,’’ the agencystated its belief that Congress did notintend to subject blood and bloodcomponents to PDMA’s provisions (55FR 38027).

The comments contend that, as withwhole blood and blood componentsintended for transfusion, the supply ofblood derivatives to the public would beimpeded if blood banks were notpermitted to distribute these products.However, unlike whole blood and bloodcomponents, blood derivatives aremanufactured in large quantities bymanufacturers that are independent of

blood banks and blood centers, arepackaged and stored similarly to otherpharmaceuticals, and have relativelynormal shelf lives. Moreover, bloodderivatives need not be matched from adonor to a donee as do whole blood andblood components intended fortransfusion. Thus, although in someinstances blood derivatives aredistributed by blood centers andhospital blood banks, they also aredistributed by conventional drugwholesalers. There is no evidence beforethe agency at this time that a substantialpercentage of the nation’s supply ofblood derivatives is currentlydistributed by blood centers, hospitalblood banks, or transfusion services, orthat the nation’s supply of bloodderivatives would be seriously impededif these entities were prohibited fromdistributing these products.

Moreover, the comments’ assertionthat blood derivatives, like blood andblood components, are not subject to theabuses Congress set out to remedy inPDMA is speculative and unsupportedby facts. As discussed previously, bloodderivatives are distributed through anormal wholesale distribution system,and they need not be matched tospecific patients. Thus, the possibility ofdiversion of these products exists, anddocumented instances of diversion ofthese products have in fact occurred.The fact that blood derivatives were notspecifically mentioned by Congress inthe legislative history is in itself of littlesignificance.

FDA recognizes that, in addition toselling blood derivatives to communityhospitals, blood centers havetraditionally provided advice andguidance on how to use the derivatives.The final rule does not prohibit theprovision of information by a healthcare entity to another health care entity,but rather prohibits the selling ofprescription drug products, includingblood derivatives, that are purchased bya hospital or health care entity. Thus,blood centers or other entities that havetraditionally provided information tohospitals or other health care centers arenot precluded from doing so underPDMA or the final rule.

3. One comment stated that FDA’sdefinition of health care entity is‘‘without factual or legal foundation.’’

Two comments stated that FDA’sinterpretation of section 503(c)(3) of theact as prohibiting a health care entityfrom simultaneously being a wholesaledistributor is contrary to the plainlanguage of the statute and to legislativeintent, and places inappropriaterestrictions on the legitimate operationsof blood centers. These commentsinterpreted the last sentence in section



503(c)(3)(A) of the act, which states inpart that ‘‘[f]or purposes of thisparagraph, the term ‘entity’ does notinclude a wholesale distributor of drugsor a retail pharmacy licensed underState law,’’ as creating an exemption tothe sales restrictions in that section forhealth care entities that are Statelicensed as wholesale distributors. Thecomments stated that FDA’s proposeddefinition of ‘‘health care entity’’contradicts the clear wording of thestatute. The comments also stated thatthe proposed definition is inconsistentwith legislative intent to permit healthcare entities acting as legitimatewholesalers to engage in wholesaledistribution of prescription drugs.

The agency acknowledges that thefirst clause of the last sentence insection 503(c)(3) of the act could be readto make the restrictions in section503(c)(3)(A) of the act inapplicable tohospitals or health care entities Statelicensed as wholesale distributors.However, the agency believes that thestatutory language should be read tomean that health care entities subject tothe restrictions in section 503(c)(3)(A) ofthe act cannot simultaneously bewholesale distributors or retailpharmacies. As noted by the agency inthe proposed rule (59 FR 11842 at11845), the former interpretation isinconsistent both with general rules ofstatutory construction and withlegislative intent. If this interpretationwere to be given effect, it would meanthat a health care entity couldcircumvent the sales restrictions byobtaining a State wholesale distributionlicense. Such an interpretation woulddeprive the sales restrictions of anyforce or effect. Moreover, Congressexpressly enumerated in section503(c)(3)(B) of the act the circumstancesunder which drugs purchased by ahealth care entity may be sold. Theagency believes that if Congress hadintended to permit sales of prescriptiondrugs purchased by health care entitiesthat are State licensed wholesaledistributors, it would have done sounder section 503(c)(3)(B) of the act.

Interpreting section 503(c)(3) of theact in the manner suggested by thecomments would also be inconsistentwith legislative intent as reflected in thecongressional findings and legislativehistory. The statutory restrictions insection 503(c)(3)(A) of the act reflect thecongressional finding in section 2(7) ofPDMA that the resale of prescriptiondrugs by health care entities at belowwholesale prices had helped to fuel thediversion market and constituted anunfair form of competition to legitimatewholesalers and retailers payingprevailing market prices. These same

concerns also were expressed byCongress in the legislative history. (SeeH. Rept. 100–76, pp. 12–13.) If healthcare entities were permitted to obtainState wholesale distributor licenses andengage in wholesale distribution ofprescription drugs, as suggested by thecomments, there would be no way ofensuring that the types of abuses thatCongress sought to prevent in section503(c)(3)(A) of the act would not occur.Neither the requirements applicable towholesale distributors in section 503(e)of the act nor the State licensingguidelines in part 205 containrequirements to deter a health careentity from reselling prescription drugs,or require or authorize FDA to keeptrack of the circumstances under whichprescription drugs are bought and soldby wholesale distributors. Thus, ifhealth care entities were permitted to beState licensed wholesale distributors,they could purchase drugs for their ownuse and sell them on the secondarywholesale market with impunity andwithout the knowledge of the agency orCongress. The agency does not believethat Congress intended such a result.

Licensed practitioner. Proposed§ 203.3(o) defined ‘‘licensedpractitioner’’ as ‘‘any person licensed byState law to prescribe drugs.’’

4. One comment recommended that‘‘or authorized’’ be added after‘‘licensed’’ in the definition to allownonphysician practitioners subject toState authorization schemes other thanlicensing to obtain drug samples.

The agency has decided to follow thesuggestion of the comment and revisethe definition of ‘‘licensed practitioner’’in the final rule to include practitionersauthorized by State law to prescribedrugs. Congress stated in the legislativehistory (S. Rept. 100–303, p. 5) that‘‘Drug samples may only be distributedto practitioners licensed or authorizedby State law to prescribe such drugs.’’Moreover, the use by Congress of theterm ‘‘licensed practitioner’’ rather than‘‘physician’’ in section 503(d)(2)(A) ofthe act shows congressional intent toallow nonphysician practitioners toobtain drug samples. Because asignificant number of these practitionersare subject to different Stateauthorization schemes than licensing,the agency finds that a strictinterpretation of the word ‘‘license’’would be inconsistent withcongressional intent.

5. One comment stated that, in someStates, advanced practical nurses arelicensed to prescribe certain drugs, butare prohibited from obtaining samplesof the same drugs. The commentasserted that, under the proposeddefinition of ‘‘licensed practitioner,’’

such nonphysician practitioners wouldbe permitted to obtain samples.

In developing the proposed definitionof licensed practitioner, the agency wasnot aware that some States may permitpractitioners to prescribe certain drugs,but prohibit them from obtainingsamples of those drugs. Because theagency does not wish to interfere withStates’ authority to determine who mayrequest and receive drug samples, theagency clarifies that a practitioner whois prohibited by State law fromreceiving samples of certain types ofdrugs is not permitted to do so underPDMA even though he or she is licensedor authorized to prescribe those drugs.

Ongoing relationship. Proposed§ 203.3(r) defined ‘‘ongoingrelationship’’ as an association thatexists when a manufacturer and adistributor enter into a writtenagreement under which the distributoris authorized to sell the manufacturer’sproducts for a period of time or for anumber of shipments, at least one saleis made under that agreement, and thename of the authorized distributor ofrecord is entered on the manufacturer’slist of authorized distributors of record.

6. One comment objected to arequirement for a written agreementbetween a manufacturer and adistributor. The comment stated thatwritten agreements are not customary inthe industry and that such arequirement would be burdensomebecause distributors distribute for largenumbers of vendors. The commentrecommended that, for the purposes ofproving that an ongoing relationshipexists, it should be sufficient to showthat sales are made on a continuingbasis and that the distributor’s nameappears on the manufacturer’s list ofauthorized distributors.

Another comment objected both to therequirement for a written agreement andto the requirement that a distributor beon the manufacturer’s list of authorizeddistributors of record. The commentstated that neither of these requirementswas previously required by the agencyin compliance information provided toindustry by the agency. The commentstated that both requirements wouldmake it more difficult for distributors tobecome authorized distributors ofrecord. In addition, the comment statedthat the requirements would giveprescription drug manufacturers theability to deny authorized-distributor-of-record status to distributors with whomthey have engaged in ongoing businessrelationships. The comment stated thatby giving drug manufacturers the powerto decide to whom PDMA wholesaledistribution requirements apply withoutoversight or review, FDA would be



3 The written agreement required under § 203.3(u)to establish an ongoing relationship constitutes a‘‘required record’’ under revised § 203.60, and mustbe made available, upon request, to FDA or otherFederal, State, or local regulatory or lawenforcement officials for review and reproduction.

delegating legislative power to theprivate sector in violation of separationof powers principles in the U.S.Constitution. The commentrecommended that FDA adopt adefinition of ongoing relationship thatmirrors a definition set forth by theagency in a 1988 compliance letter.

PDMA defines the term ‘‘authorizeddistributors of record’’ as thosedistributors with whom a manufacturerhas established an ongoing relationshipto distribute the manufacturer’sproducts. PDMA does not, however,define what constitutes an ‘‘ongoingrelationship.’’ In a 1988 letter issued byFDA (see Letter from Daniel L. Michels,Director, Office of Compliance toRegulated Industry, Docket No. 88N–258L, August 1, 1988), the agency madeits first attempt to interpret the term inthe context of PDMA. FDA stated that‘‘ongoing relationship’’ may beinterpreted to mean a continuingbusiness relationship in which it isintended that the wholesale distributorengage in wholesale distribution of amanufacturer’s prescription drugproduct or products. The agency statedthat evidence of such intent couldinclude, but would not be limited to, theexistence of a written franchise, license,or other distribution agreement betweenthe manufacturer and wholesaledistributor and the existence of ongoingsales by the manufacturer to thedistributor.

The agency continues to believe thatthe term ‘‘ongoing relationship’’ in thecontext of wholesale distribution infersa continuing business relationshipbetween a distributor and amanufacturer where the intent exists toengage in wholesale distribution.Furthermore, the agency has determinedthat, to facilitate compliance with andenforcement of the act, it is necessary tohave a formalized way of establishingthat an ongoing relationship exists. Awritten agreement in which themanufacturer authorizes the distributorto distribute some or all of its productsfor a period of time or for a number ofshipments will provide a clear andverifiable expression of the parties’intent to engage in a continuingbusiness relationship. The writtenagreement required by proposed§ 203.3(r) (revised as § 203.3(u)) neednot rise to the level of a contract orcreate legally enforceable obligations onthe parties. Rather, the agreement needonly state that the distributor isauthorized to distribute amanufacturer’s products for a period oftime or for a number of shipments and,if the distributor is not authorized todistribute all of the manufacturer’sproducts, identify those products to

which the authorization extends.3 Thislatter requirement, although notincluded in the proposed rule, isconsistent with the requirement inproposed § 203.50(c)(1) formanufacturers to maintain a list ofauthorized distributors that specifieswhether distributors are authorized todistribute the manufacturer’s fullproduct line or only particular products.

Given the relative ease with which theagreement required by § 20.3(u) can becreated, the agency believes that it ishighly unlikely that a manufacturerwould refuse to enter into a writtenagreement with a distributor with whomit wishes to have a continuing businessrelationship. Moreover, it is clearly notthe agency’s intent in requiring awritten agreement to confer additionaldiscretion on manufacturers, but ratherto implement the requirement in the actfor an ongoing relationship in a mannerin which it can be efficiently enforced.This is consistent with the agency’sauthority under section 701(a) of the act(21 U.S.C. 371(a)) to issue regulationsfor the efficient enforcement of the act.Accordingly, the agency declines torevise the definition of ‘‘ongoingrelationship’’ to eliminate therequirement for a written agreement.

Finally, on its own initiative, theagency has revised the proposeddefinition of ‘‘ongoing relationship’’ inthe final rule to eliminate therequirement that at least one sale becompleted under the written agreementand that a distributor be entered on themanufacturer’s list of authorizeddistributors of record. The proposedrequirement for a completed sale underthe written agreement is unnecessaryand, as discussed below, inconsistentwith the use of the definition in thecontext of sample distribution. Theproposed requirement that a distributorbe entered on the manufacturer’s list ofauthorized distributors of record isunnecessary in light of the requirement,in section 503(e)(1)(B) of the act andrevised § 203.50(d) of the final rule, thatmanufacturers keep an updated list ofauthorized distributors of record at theircorporate offices.

7. Another comment stated thatsample fulfillment houses, mailingservices, comarketers, and similarentities clearly distribute sampleswithin the meaning of ‘‘distribute’’ inproposed § 203.3(h), but cannot satisfythe requirements for an ongoingrelationship in proposed § 203.3(r)

necessary to be considered authorizeddistributors of record. The commentrecommended that the proposeddefinition of ongoing relationship berevised to permit these entities to beauthorized distributors of record.

The comment raises a valid point. Theproposed definition of ongoingrelationship is inappropriate for sampledistribution, and has been revised in thefinal rule to specify that an ongoingrelationship exists when there is awritten agreement between amanufacturer and distributor todistribute, rather than to sell, themanufacturer’s products for a period oftime or for a number of shipments.

Prescription drug. Proposed § 203.3(v)defined ‘‘prescription drug’’ as any drugrequired by Federal law to be dispensedonly by a prescription, includingfinished dosage forms, bulk drugsubstances, and active ingredientssubject to section 503(b) of the act.

On its own initiative, the agency hasremoved ‘‘active ingredients’’ in thefinal rule. The term ‘‘bulk drugsubstance,’’ as defined under § 203.3(e),is synonymous with ‘‘active ingredient.’’

Wholesale distribution. Proposed§ 203.3(y) defined ‘‘wholesaledistribution’’ as ‘‘distribution ofprescription drugs to persons other thana consumer or patient, but does notinclude: (1) Intracompany sales * * *.’’

8. One comment objected to theexemption of intracompany sales fromwholesale distribution, stating that it‘‘totally gets away from the originalintent of the PDMA.’’ The comment saidthat this provision leaves a gap wherediversion can occur betweenwholesalers and retail outlets owned bythem.

The agency disagrees with thecomment. Intracompany sales wereexpressly excluded by Congress fromthe definition of wholesale distributionin section 503(e)(4)(B) of the act. Inaddition, both the House and Senatereports referred to the exclusion. (See H.Rept. 100–76, S. Rept. 100–303.) TheHouse report stated:

[i]t is the express intent of the Committeethat the scope of [this section] includedistribution by chain drug warehouses,wholesale drug warehouses, and all sellers ofprescription drugs in wholesale quantities topersons or firms other than the consumer orpatient. With respect to section 503(e)(1),intracompany sales, i.e., the distributionbetween divisions and companies having thesame ownership, are excluded.(H. Rept. 100–76, p. 17.)Thus, as expressed in the language ofthe act and the legislative history,Congress’ intent was to excludeintracompany sales from therequirements for wholesale distributionin section 503(e) of the act. In addition,



the agency advises that § 205.5contemplates a licensing scheme forbusiness entities with subsidiaries,affiliates, and more than one facility (see§ 205.5(b)), and provides that Statelicensing authorities require eachwholesale distributor to supplyinformation on all facilities used by thelicensee for the storage, handling, anddistribution of prescription drugs (see§ 205.5(a)(3)).

C. Reimportation

Proposed § 203.10 stated, in relevantpart, that ‘‘[n]o prescription drug thatwas manufactured in a State andexported from the United States may bereimported by anyone other than itsmanufacturer.’’

9. One comment requested that theproposed rule be revised to state that aprescription drug may be reimported byany of a manufacturer’s subsidiarycompanies or contract manufacturers.

For the reasons discussed in thepreamble to the proposed rule (59 FR11842 at 11844), FDA is adopting thedefinition of manufacturer set forth in§ 201.1 (21 CFR 201.1) of the agency’sregulations for the purposes of part 203.Accordingly, a manufacturer’ssubsidiary companies or contractmanufacturers may reimport aprescription drug product only if theyalso qualify as a manufacturer of thedrug product under § 201.1.

10. One comment recommended thatlanguage be added to the section toinclude drugs that are sold by amanufacturer for exportation, but neverleave the United States. The commentstated that a large proportion of the‘‘export’’ drugs that are diverted neveractually leave the United States.

Because the drugs referred to by thecomment are not exported, they cannotbe subject to the restriction onreimportation. However, the domesticdistribution of such drugs is covered byPDMA and other applicable laws, whichshould help to reduce the potential fordiversion.

D. Sales Restrictions

Proposed § 203.20 prohibited the sale,purchase, or trade of, or offer to sell,purchase, or trade, any prescriptiondrug that was purchased by a public orprivate hospital or health care entity ordonated or supplied at a reduced priceto a charitable institution.1. Section 203.22(e)

Proposed § 203.22(e) provided that§ 203.20 does not apply to: ‘‘The sale,purchase, or trade of a drug, an offer tosell, purchase, or trade a drug, or thedispensing of a drug under a validprescription.’’

11. A health care organizationrequested that FDA clarify whether,under this section, its nonprofitaffiliates may provide prescriptiondrugs obtained at a nominal cost topatients under a prescription, where theamount charged for the drug variesdepending on the patient’s ability topay.

Section 203.20 does not prohibit ahealth care entity from obtainingprescription drugs at reduced cost.Rather, it prohibits reselling those drugsexcept in specified ways. Section203.22(e) allows the resale of drugs bya health care entity under a validprescription. The amount of profitderived from such a sale, or the lackthereof, is not addressed by § 203.22(e).Therefore, a health care entity may,subject to other applicable laws, resellprescription drugs to patients under avalid prescription at varying prices.2. Section 203.22(f)

Proposed § 203.22(f) provided that§ 203.20 does not apply to:

The sale, purchase, or trade of a drug or theoffer to sell, purchase, or trade a drug byhospitals or health care entities owned oroperated by Federal, State, or localgovernmental units to other hospitals orhealth care entities owned or operated byFederal, State, or local governmental units.

12. One comment opposed thisexclusion. The comment argued thatgovernment employees are just as apt toengage in drug diversion activities as areprivate sector employees. The commentstated that the potential for drugdiversion is even greater in the publicsector because Federal and Statehospitals and health care entities oftenreceive more favorable pricing termsthan private hospitals. The commentalso stated that the exclusion ‘‘appearsself serving’’ and is not supported by thelegislative record.

FDA disagrees with this comment. Asthe agency explained in the preamble tothe proposed rule (59 FR 11842 at11847), any profits from legitimate salesof prescription drugs by governmenthospitals would accrue to governmenttreasuries. Thus, no financial incentiveexists for a government hospital orhealth care entity, or its representativesacting in an official capacity, to engagein diversion. Given the lack of financialincentive, the amount of profit thatcould be realized due to the prices atwhich government hospitals mayreceive prescription drugs is irrelevant.Moreover, although it is possible thatindividual employees may steal drugs orobtain them by other criminal methodsand sell them, criminal conduct byindividual employees was not intendedby Congress to be addressed by the salesrestrictions. Rather, it was the legal

resale of drugs obtained by hospitalsand health care entities, and thepotential profit accruing to thoseentities from such sales, with whichCongress was concerned in enacting thesales restrictions.

Finally, the agency disagrees that theexclusion is not supported by thelegislative record. As discussedpreviously and in the proposed rule (59FR 11842 at 11846 and 11847), theprohibition against sales by hospitals orhealth care entities was prompted inpart because of the temptation for suchentities to sell for profit drugs acquiredat below wholesale prices. Because nofinancial incentive exists forgovernment hospitals to profit fromsales to other government hospitals, it isunlikely that such sales would result inthe kinds of abuses that PDMA salesrestrictions were designed to prevent.

In addition, Congress expresslycreated exclusions permitting, amongother things, sales between hospitals orhealth care entities under commoncontrol and emergency sales byhospitals or health care entities to retailpharmacies to allow for the provision ofhealth care to patients. (See H. Rept.100–76, 13). As discussed in thepreamble to the proposal (58 FR 11842at 11846 and 11847), permittingprescription drug sales betweengovernment hospitals and health careentities will help such entities toprovide health care services in responseto various needs, including theprovision of health care to people withlow incomes and the distribution ofvaccines. Thus, the exception isconsistent both with Congress’ generalobjectives in enacting the salesrestrictions and with the rationalesupporting other exemptions expresslycreated by Congress.3. Sections 203.23 and 203.24

Proposed §§ 203.23 and 203.24 setforth exemptions to the salesprohibition contained in proposed§ 203.20. Proposed § 203.23 provided anexemption for the revocation of a saleand purchase transaction by a hospital,health care entity, or charitableinstitution because of a mistake inordering or delivery and the reshipmentof the prescription drug to amanufacturer or wholesale distributorfor a credit or refund. The sectionrequired that the drug be shipped backto the manufacturer or distributorwithin 10 days and that the reshipmentbe made under proper conditions forstorage, handling, and shipping. Inaddition, the section required that, if thedrug is reshipped to a wholesaledistributor, the hospital, health careentity, or charitable institution mustprovide written notice to the



manufacturer of the revocation andreshipment.

Proposed § 203.24 provided anexemption for the return of aprescription drug purchased by ahospital or health care entity, oracquired at a reduced price by ordonated to a charitable institution, tothe manufacturer or the wholesaledistributor that sold, donated, orsupplied the prescription drug. Thesection required that, if the drug isreturned to a wholesale distributor, thehospital, health care entity, charitableinstitution, or distributor must notifythe manufacturer that the drug has beenreturned. In addition, the hospital,health care entity, or charitableinstitution must prepare a credit memofor all returns. The returning entity mustforward a copy of the memo to themanufacturer and retain a copy for itsrecords. The section also required thatreturned drugs be kept under properconditions for storage, handling, andshipping. Finally, the section requiredthat the value of any credit, refund, orexchange not exceed the purchase priceor, if a donation, the fair market priceof the returned product.

13. One comment said that itgenerally supported the agency’sapproach for allowing returns, butquestioned the need for § 203.23 andrecommended that it be deleted in thefinal rule. According to the comment,the agency’s purpose for calling a returna revocation of acceptance andreshipment was to address concerns thatsales provisions in the UniformCommercial Code (UCC) could make areturn a prohibited resale under PDMA.The comment stated that by ‘‘expandingon this initial allowance of returnedproduct and proposing § 203.24, FDAhas shown that it has overcome UCCconcerns and will not view a return asa prohibited resale.’’

The agency agrees for the most partwith the comment. Because proposed§§ 203.23 and 203.24 permittransactions and impose notificationand documentation requirements thatare similar, and because the situationsin which returns would be permittedunder § 203.23 would also be permittedby § 203.24, the agency has decided towithdraw proposed § 203.23 andredesignate proposed § 203.24 as new§ 203.23 in the final rule. This willsimplify the regulation and eliminatepotential confusion about whetherproposed § 203.23 or § 203.24 applies toa particular return. Under the revisedregulation, all prescription drugsreturned by a hospital, health careentity, or charitable institution to itssupplier will be regarded as ‘‘returns’’and will be subject to the same

requirements for providing notice to themanufacturer, documenting the return,and maintaining proper storage,handling, and shipping conditions.

On its own initiative, the agency hasdecided not to include in revised§ 203.23 the requirement in proposed§ 203.24(a) that a hospital, health careentity, charitable institution, ordistributor notify the manufacturer thata prescription drug product has beenreturned when the return is made to awholesale distributor. Under revised §203.23(a) and (b), the hospital, healthcare entity, or charitable institution isalready required to fill out a creditmemo documenting the return of aprescription drug and to forward a copyof that memo to the manufacturer. Theagency believes that the receipt of thecredit memo by the manufacturershould provide sufficient notice to it ofthe source of a return, and theadditional notice that would have beenrequired under proposed § 203.24(a) isnot necessary.

14. One comment stated that theconcerns addressed by the requirementsfor notification of the manufacturer anddocumentation of returns in theproposal is legitimate, but that healthcare entities should not be ‘‘heldresponsible for helping to police thewholesale drug industry.’’ The commentsaid that wholesalers should be requiredto develop mechanisms fordocumentation and recordkeeping thatwould achieve the desired goals of theregulation.

The agency believes that the commentmisconstrues the purpose of the noticeand documentation requirements. Asthe agency explained in the proposal,the purpose of requiring that a creditmemo be forwarded to the manufactureris to help ensure that any chargebacksor reduced prices will be factored intoa credit or refund provided by themanufacturer to prevent windfall profitsfrom the transaction (59 FR 11842 at11847). There is a potential for suchprofits to be realized not only bywholesale distributors, but by hospitals,health care entities, and charities. Thus,the agency disagrees that the purpose ofproviding notice is limited to policingthe wholesale drug industry. Inaddition, the agency believes that thereturning hospital, health care entity, orcharity is in the best position to providethe information required in the creditmemo and, as the party that derives thebenefit from any special pricingprovided by the manufacturer, shouldbe responsible for ensuring that returnsare legitimate.

15. Another comment stated that theresale restrictions were not intended byCongress to cover normal and legitimate

returns of prescription drugs and thatFDA is therefore not required orauthorized by PDMA to placerequirements on returns. The commentsaid that the provision of notice to amanufacturer when drugs are returnedto a wholesale distributor wouldconstitute an unreasonableadministrative burden on manufacturerswho do not provide a refund or creditin such circumstances.

As discussed in the proposal (59 FR11842 at 11847), proposed §§ 203.23and 203.24 were included to address theconcern that, subsequent to a completedsale, a return for cash, credit, or otherconsideration could be viewed as a newand prohibited sales transaction undersection 503(c)(3)(A) of the act. Althoughthe agency agrees that Congress did notintend to prohibit legitimate returns ofprescription drugs, there is a potentialfor abuses to occur with returns. Thenotice and documentation requirementsin revised § 203.23(a) and (b) arenecessary to help ensure that thereturning entity or entities do not profitunfairly by the return and that diversionof returned drugs does not occur. Bothof these goals are consistent withCongress’ intent in enacting the salesrestrictions. (See sec. 2(7), PDMA, H.Rept. 100–76, pp. 12–13.)

16. One comment stated thatproposed §§ 203.23 and 203.24 shouldbe clarified so that prescription drugsthat are returned to the manufacturer fordestruction are exempt from therestrictions in § 203.20, and thus neednot adhere to the requirements inproposed §§ 203.23 and 203.24.

The agency declines to provide theclarification sought by the comment.Under § 203.20, the sale, purchase, ortrade of a prescription drug purchasedby a hospital or health care entity, ordonated or supplied at a reduced priceto a charitable institution, is prohibitedunless the sale, purchase, or trade isexempt from § 203.20 under § 203.22 orrevised § 203.23. When a prescriptiondrug that is purchased by a hospital,health care entity, or charity is returnedto the manufacturer for destruction anda credit or refund is given for the return,the return constitutes a sale that isprohibited by § 203.20, unless therequirements of § 203.23 are met.Similarly, the agency will consider theprovision of destruction services by amanufacturer or distributor at no orreduced cost to the returning entity,relative to the fair market value for suchservices, to constitute considerationsupporting a sale. Thus, returns ofprescription drugs for destruction mustmeet the requirements of § 203.23,unless no credit or refund is given forthe return and the returning entity pays



the fair market value for the drugs’destruction.

The conclusion reached above is fullyconsistent with the policy underlyingthe requirements in § 203.23. First,drugs that are returned for destructionhave the same potential to be divertedas drugs that are returned forredistribution. The threat to the publichealth from diversion of such drugscould be particularly severe becausethey are presumably unsuitable for use.Therefore, it is essential that drugsreturned for destruction be subject todocumentation requirements thatprovide accountability over the return.Additionally, there may be situations inwhich a returned drug that is designatedfor destruction by a hospital, health careentity, or charity may be deemedsuitable for sale by the distributor ormanufacturer. For example, a drugreturned because its outer packagingwas damaged may, after examination ortesting is conducted by themanufacturer as required by § 205.50(e),prove to be fit for use. Thus, returneddrugs must be maintained under properconditions for storage, handling, andshipping, and written documentationreflecting the maintenance of properconditions must be provided to helpensure that, if the returned drug isredistributed, it is safe and effective.

17. One comment supported therequirements in proposed §§ 203.23(b)and 203.24(e) (new § 203.23(c)) relatingto maintaining proper conditions forstorage, handling, and shipping ofreturned drugs and providingdocumentation of such conditions. Thecomment said that wholesalers need theinformation to carry out theirobligations for handling returns under§ 205.50(e). The comment recommendedthat documentation of proper returnconditions should be specificallynondelegable.

Section 203.23(c) requires that a drugreturned to a manufacturer be storedand handled appropriately, according toits labeled storage requirements, bothwhile it is in the possession of ahospital, health care entity, or charity,and during its return (i.e., duringreshipment). Prior to reshipment, onlythe hospital, health care entity, orcharity in physical possession of thedrug knows and can document whetherthe drug has been stored and handledappropriately. However, because acommon carrier or other third party maybe used to reship the drug, this partymay provide documentation that thedrug was stored and handled properlyduring reshipment. Thus, if a returninghospital, health care entity, or charityuses a common carrier or other thirdparty to reship drugs, the third party or

carrier may create the requireddocumentation, and provide thedocumentation to the manufacturer ordistributor on delivery.

The agency clarifies that, regardless ofwhether a common carrier is used toreship the drug, the returning hospital,health care entity, or charitableinstitution is responsible for complyingwith the requirements of § 203.23. Thus,if proper conditions were notmaintained during reshipment and/or ifwritten documentation showing thatproper conditions were maintainedduring reshipment was not provided tothe manufacturer or wholesaledistributor to which the drugs arereturned, the requirements of § 203.23would not be met and the returninghospital, health care entity, or charitableinstitution would be in violation of§ 203.20 of FDA regulations and section503(c)(3)(A) of the act.

18. Proposed § 203.24(d) required thatthe value of any credit or refund notexceed the purchase price or fair marketprice of the returned product. Onecomment stated that the provisionwould be burdensome on manufacturersthat currently calculate credits orrefunds based on the purchase price ofthe drug as of the date of return. Thecomment also stated that it would bevirtually impossible, without theimplementation of a costly,sophisticated system by themanufacturer, to attach a cost to aspecific item when it is not knownwhen the item was acquired. Thecomment recommended that theprovision be revised to allow the valueof the return to be based on thepurchase price of the drug as of the dateof the return.

The agency’s intent in proposing§ 203.24(d) was, as with the noticeprovisions, to prevent hospitals, healthcare entities, charities, or distributorsfrom obtaining windfall profits fromreturns at the expense of manufacturers.Thus, as proposed, the provision wouldnot make manufacturers responsible forensuring that the amount of a credit,refund, or exchange given for a drugdoes not exceed the purchase price or,if a donation, the fair market value atthe time the donation was made.Instead, the section would make thereturning hospital, health care entity, orcharitable institution responsible forensuring that it did not accept a credit,refund, or exchange that exceeds thepurchase price or fair market value atthe time the drug was purchased ordonated. Nevertheless, FDA recognizesthat in order to comply with thisprovision, manufacturers would have tomaintain records of the price paid for adrug at the time it was purchased.

Because maintaining such records doesnot appear to constitute customaryindustry practice and would imposeadditional costs and burdens onmanufacturers, the agency has revised§ 203.23 in the final rule to eliminatethe requirement that the value of anycredit or refund not exceed the purchaseprice or fair market price of the returnedproduct.

E. Samples

1. Sample Distribution by Mail orCommon Carrier

Proposed § 203.30(a)(2) required thatthe recipient of a drug sampledistributed by mail or common carrierexecute ‘‘a written receipt, as set forthin paragraph (c) of this section, whenthe drug sample is delivered.’’ Proposed§ 203.30(c) set forth the requiredcontents of the receipt for samplesdistributed to licensed practitioners,and to designated pharmacies of healthcare entities. Proposed § 203.30(c)provided:

* * * The receipt is to be on a formdesignated by the manufacturer ordistributor, and is required to contain thefollowing:

(1) If the drug sample is delivered to thelicensed practitioner who requested it, thereceipt is required to contain the name,address, professional title, and signature ofthe practitioner or the practitioner’s designeewho acknowledges delivery of the drugsample; the proprietary or established nameand strength of the drug sample, the quantity,and the lot or control number of the drugsample delivered; and the date of thedelivery.

(2) If the drug sample is delivered to thepharmacy of a hospital or other health careentity at the request of a licensedpractitioner, the receipt is required to containthe name and address of the requestinglicensed practitioner, the name and addressof the hospital or health care entity pharmacydesignated to receive the drug sample; thename, address, professional title, andsignature of the person acknowledgingdelivery of the drug sample; the proprietaryor established name and strength of the drugsample, the quantity, and the lot or controlnumber of the drug sample delivered; and thedate of the delivery.

19. Several comments stated that notall of the information required to appearon the sample receipt form underproposed § 203.30(c) is necessary toconfirm delivery of a sample. Onecomment stated that the act onlyrequires information sufficient to verifythat the sample received matches thesample requested and sent. Anothercomment asserted that FDA does nothave the authority under PDMA tospecify the content of the receipt, andthat the only information required byPDMA is the signature of the licensedpractitioner and any information



necessary to determine the identity ofthe sample and the recipients.

The agency has determined that, withthe exception of the proposedrequirement for the lot or controlnumber of the sample (discussed belowin conjunction with comments on§§ 203.30 and 203.31), the informationrequirements in proposed § 203.30(c)are necessary to ensure that samplesthat are requested are received by theintended recipient and that patterns ofnondelivery of drug samples can beidentified. Both of these objectives areconsistent with legislative intent. (SeeH. Rept. 100–76 at 15.) The agencytherefore declines to eliminate ormodify these requirements in the finalrule.

The information required underproposed § 203.30(c) mirrors most of theinformation required to appear on thesample request form under proposed§ 203.30(b). This information is theminimum information necessary toidentify the type and quantity of drugsamples being requested anddistributed, the requesting practitioner,and, if applicable, the designatedhospital or health care entity to whichthe drug samples are to be delivered.The only information required byproposed § 203.30 to appear on drugsample receipt forms that is not requiredto appear on request forms is the name,address, professional title, and signatureof the person acknowledging delivery ofthe drug sample. This information isnecessary to establish accountability forreceipt of drug samples when samplesare delivered to a practitioner’s officeand the requesting practitioner does notphysically receive the drug sample andsign the sample receipt or when samplesare delivered to a hospital or health careentity at the request of a practitioner.

20. Several comments objected to therequired information because electronicdelivery verification systems currentlyused by delivery services and commoncarriers cannot accommodate theinformation. According to thecomments, current electronic deliveryverification systems are capable ofrecording some, but not all, of therequired information. The commentsstated that to capture all of the requiredinformation, a manufacturer orauthorized distributor of record wouldhave to use a paper system independentof common carriers’ deliveryverification, such as a business replymail card. Several comments said thatpaper systems involve moreadministrative costs and would result inless compliance by practitioners thanelectronic delivery verification. Onecomment stated that, using businessreply mail cards, it would take two to

three followup letters to achievecompliance within the 90 to 95 percentrange. Another comment said that datamay be accessed faster and easier withelectronic verification systems thanwith business reply mail cards, sincethe data are stored electronically ratherthan manually. Several commentsrecommended revising the proposedrule to bring it into conformity with thespecific electronic delivery verificationsystem used by the commenter. Othercomments recommended that theproposed rule be revised to state thatreceipts used by common carriers aspart of their normal course of businessare sufficient.

The agency recognizes thatmanufacturers and authorizeddistributors of record may not be able tocomply fully with the sample receiptcontent requirements in proposed§ 203.30(c) using commercial carriers’electronic delivery acknowledgmentsystems. Electronic deliveryacknowledgment systems do not appearto be designed to meet the specificinformational requirements for samplereceipts under § 203.30(c) at the presenttime. Thus, the use of business replymail cards or other types of papersystems capable of recording therequired information may be necessary.These systems may not be as convenientfor health care practitioners receivingsamples to use as electronic deliveryacknowledgment systems and willprobably be more expensive formanufacturers and authorizeddistributors of record. However, thesedisadvantages are not in themselvessufficient reason to eliminate theinformational requirements in proposed§ 203.30(c), where no satisfactoryalternatives exist to ensure thatcongressional objectives for establishingcontrols on sample distribution are met.

21. Two comments requested thatFDA permit the use of combinations ofelectronic and paper media to create therequired receipt form. Under thescenario presented by one of thecomments, a receipt would be signed bythe practitioner or his designee at thetime of delivery, but it would notcontain all of the required information.The information not contained on thereceipt would be maintained on aseparate electronic data base, whichwould be linked via a ‘‘unique number’’to the receipt. The other commentrequested that the agency permit asignature obtained through a carrier’snormal delivery verification to be‘‘added’’ later to an electronic recordcontaining all of the requiredinformation.

As discussed previously, the agencyhas revised proposed § 203.60 to permit

manufacturers and authorizeddistributors of record to create andmaintain drug sample receipts and otherrecords using combinations of paper-based and electronic media. Under§ 203.60(a)(2), combinations of paperrecords and electronic records may beused provided: (1) The requirements ofpart 11 are met for the electronic record,and (2) a reasonably secure link betweenthe paper record and electronic recordexists to ensure that the combinedrecords are trustworthy and reliable andto ensure that the signer cannot readilyrepudiate the signed record as notgenuine. Neither of the scenariospresented by the comments wouldensure that a reasonably secure linkexists between the paper-based andelectronic records because theindividual signing the receipt at thetime of the sample delivery would notknow the contents of the receipt andthus could not attest that the contents ofthe receipt are correct. Moreover, underthese circumstances, the signer couldreadily repudiate the signed record asnot genuine. Thus, neither of thescenarios would meet the requirementsof § 203.60(a)(2).

22. One comment requestedclarification of whether the proposedrule would supplant the March 2, 1993,guidance letter recommendations ondelivery confirmation of drug samplesby common carriers.

Any policy stated in that document,including the policy on deliveryverification, is superseded by thepolicies set forth in the final regulation.

2. Sample Distribution by aRepresentative or Detailer

a. Section 203.31(a)(1) and (a)(2).Proposed § 203.31(a)(1) required thatbefore a manufacturer or authorizeddistributor of record distributes a drugsample to a licensed practitioner, itmust receive a signed, written requestform from the licensed practitioner.Proposed § 203.31(a)(2) required that therecipient sign a receipt form containingthe information required underproposed § 203.31(c) when the drugsample is delivered. Proposed§ 203.31(a)(3) required that the receiptbe returned to the manufacturer ordistributor.

23. One comment requested that theproposed rule be revised to clarify thata single form may be used to satisfy therequirements of a request and receiptform.

FDA set forth its policy on the use ofone form to satisfy the request andreceipt form requirements for samplesdelivered by a representative in thepreamble to the proposed rule (58 FR11842 at 11849). The agency stated:



A sample request and receipt need not beon separate forms if delivery is by arepresentative. A single form could bedevised and used containing all of therequired information, which could be fullycompleted and executed with a singlesignature, if the request and delivery aresimultaneous, or executed in part with asignature for the request at the time of therequest, and executed in part with a secondsignature acknowledging receipt at the timeof the delivery.The agency wishes to emphasize that,whether one form or separate forms areused, only a licensed practitioner mayrequest a sample and sign the requestform. A sample receipt, however, maybe signed either by a licensedpractitioner or that practitioner’sdesignee.

24. FDA received four comments thatobjected to any requirement for a receiptfor representative-delivered samples.The comments stated that receipts forrepresentative-delivered samples werenot required by PDMA and that thisrequirement goes beyond the scope ofthe act. Two comments stated that mostrequests and deliveries take place on thesame representative visit. One commentrecommended that the rule be revised tocover only those situations whererequest and delivery of samples do notoccur on the same visit. Anothercomment said that Congress requiredreceipts for samples delivered by mailor common carrier, but notrepresentatives because there are moreopportunities for samples to be lost ordiverted when the mail is used. Thecomment recommended that themanufacturer could use the informationon the request form to do its ownfollowups with licensed practitioners tosee whether samples had beendelivered.

Although Congress did not expresslyrequire a receipt for representative-delivered samples in the act, FDA hasconcluded that additional requirements,including receipts, are necessary to helpensure effective enforcement, increasedaccountability and oversight of sampledistribution, and to provide adequatesafeguards against drug samplediversion. All of these goals areconsistent with and further thelegislative intent in enacting PDMA.Although samples delivered by arepresentative to a licensed practitionermay be requested and deliveredsimultaneously, this is not always thecase. For example, the delivery ofsamples by a representative to a hospitalor health care entity pharmacydesignated by a physician may notoccur at the same time a request forsuch samples is made. When the requestfor and delivery of a sample by arepresentative do not occur

simultaneously, the potential for samplediversion and corresponding need for asample receipt are as great as whensamples are delivered by mail orcommon carrier. When the request forand delivery of a sample do occursimultaneously, the sample request andreceipt form may be merged into oneform with a single signature (seediscussion above).

25. FDA received four commentsrelated to the medium on which therequired information for representative-delivered sample receipts may appear.Two comments assumed that proposed§ 203.31(a)(2) and (c) required receiptsto be in paper form and objected to thatrequirement. Two comments asked forclarification on whether receipts do, infact, have to be in paper form or may beelectronically created. All fourcomments assumed that the proposedregulations required that a paper receiptbe left with the licensed practitionereven when receipts are electronicallycreated, and objected to thisrequirement. One comment stated thatneither PDMA guidelines nor theproposed regulations require licensedpractitioners to keep records of drugsamples received, thus a written receiptwould serve no purpose.

It appears that the confusion overwhether receipts must be written onpaper came from the preamblediscussion of proposed § 203.31 (59 FR11842 at 11849). FDA stated that ‘‘theagency has tentatively concluded thatthe requirement for a written receiptshould extend to all drug sampledeliveries, and that requirement isincluded in proposed §§ 203.30 and203.31.’’ Moreover, the word ‘‘written’’does appear in conjunction withreceipts in § 203.30, but not in § 203.31.As discussed in section II.J of thisdocument, request and receipt forms,reports, records, and other documentsand signatures required by PDMA andpart 203 may be created on paper or onelectronic media, provided that recordscreated on electronic media meet therequirements of revised § 203.60 andpart 11. In addition, although the finalregulations require that a receipt besigned and returned to the manufacturerwhen a sample is received, they do notrequire that a receipt be left with thepractitioner for his or her records or thatpractitioners maintain records ofsamples received.

b. Section 203.31(c)(2). Proposed§ 203.31(c)(2) stated that if the drugsample is received by the pharmacy ofa hospital or other health care entity atthe request of a licensed practitioner,the receipt is required to contain, amongother things, the name and address ofthe hospital or health care entity

pharmacy designated to receive the drugsample.

26. One comment objected to therequirement that the name and addressof the hospital or health care entitypharmacy designated to receive the drugsample appear on the receipt. Thecomment stated that this information isknown by the requesting licensedpractitioner.

The purpose of the receiptrequirement is not to provideinformation to the licensed practitionerthat requests the drug sample, but toprovide manufacturers and authorizeddistributors with documentation thatsamples that were requested were in factproperly delivered. When a licensedpractitioner requests that a drug samplebe delivered to a hospital or health careentity pharmacy, it is necessary for thename of the hospital or health careentity pharmacy to appear on thesample receipt so that the personreceiving the sample at the pharmacycan verify, through his or her signatureon the sample receipt, that the samplewas delivered as requested.

c. Section 203.31(d)(1) and (d)(2).Proposed § 203.31(d) required that drugmanufacturers and authorizeddistributors of record conduct aninventory, using generally acceptedinventory practices, of drug samples inthe possession or control of each of theirrepresentatives. The inventory must beconducted at least annually, and theresults of the inventory are required tobe recorded in an inventory record andreconciliation report. The contents ofthe inventory record and reconciliationreport were set forth in proposed§ 203.31(d)(1) and (d)(2). Proposed§ 203.31(d)(1) required the identificationof each drug sample in arepresentative’s stock by the proprietaryor established name and dosagestrength, and the number of sampleunits. Proposed § 203.31(d)(2) required:

(i) A report of the physical count of themost recently completed prior inventory;

(ii) A record of each drug sample shipmentreceived since the most recently completedprior inventory, including the sender anddate of the shipment, and the proprietary orestablished name, dosage strength, andnumber of sample units received;

(iii) A record of drug sample distributionssince the most recently completed inventoryshowing the name and address of eachrecipient of each sample unit shipped, thedate of the shipment, and the proprietary orestablished name, dosage strength, lot orcontrol number, and number of sample unitsshipped; and

(iv) An explanation for any significant loss.As discussed in section II.E of this

document, the agency has on its owninitiative revised proposed § 203.31(d)to more clearly distinguish between the



inventory and reconciliation functionsand to clarify certain required elementsof the reconciliation report.

27. Two comments requestedclarification of the meaning of thephrase ‘‘generally accepted inventorypractices.’’ Both comments cited thestatement in the preamble of theproposed rule (59 FR 11842 at 11849)that ‘‘it is FDA’s preliminary view thatsuch an inventory must go beyond amere physical count, and thatmeaningful information and data canonly be provided if the inventory isconducted utilizing generally acceptedinventory practices * * *.’’ Thecomments said that if generallyaccepted inventory practice refers tomore than a physical count, FDA mustclarify what is required.

As discussed in section II.E of thisdocument, the final rule has beenrevised to eliminate the use of thephrase ‘‘generally accepted inventorypractices’’ in conjunction with theinventory requirement.

28. Several comments objected to therequirements in proposed§ 203.31(d)(2)(ii) and (d)(2)(iii) becausethe required information duplicatesinformation contained in sample requestforms and corporate distribution recordsthat are already on file. Two commentsstated that the reconciliation reportshould contain a reconciliation ofopening and closing inventories againstsample allocations received and sampledistributions, but not a statement of allindividual allocations and distributions.Another comment questioned whetherthe inclusion of the informationrequired under these sections in a singlereport is productive or merely anadditional clerical burden.

The first comment correctly pointsout that the information required to becontained in the reconciliation reportunder revised § 203.31(d)(2)(ii) and(d)(2)(iii) will come from varioussources, including drug sample requestand receipt forms, distribution recordsrequired to be created and maintainedunder the current good manufacturingpractice (CGMP) regulations (see, e.g.,21 CFR 211.196), and other recordsmaintained by the representative or thefirm. Nevertheless, the agency believesthat the assimilation of informationfrom these multiple records into a singlereport that concisely identifies andcharacterizes each type of transactionconducted with drug samples will aidindustry in detecting discrepancies ininventory that may be indicative of drugsample diversion activity. In addition, itwill permit FDA and other Federal andState government agencies responsiblefor enforcing PDMA to effectivelyoversee a company’s conduct in

performing its reconciliation and ininitiating investigations of potentialdrug sample record falsifications andsignificant losses and thefts of drugsamples under § 203.37.

29. One comment sought clarificationon whether the reconciliation reportmay consist of several documents that,when taken together, contain allrequired information.

The reconciliation report for anindividual sales representative mayconsist of several paper documents and/or electronic records. However, alldocuments or records are to be collectedand maintained as a singlereconciliation ‘‘report.’’

30. Another comment stated that‘‘PDMA does not require manufacturersto annually compile a report for eachsales representative that summarizes inone place all aspects of each sampledelivery in minute detail.’’

Although PDMA does not explicitlyrequire the information under§ 203.31(d)(2), it does establish anextensive scheme for monitoring drugsample distributions by a representativethat includes requirements for drugsample request forms, an annualinventory, and reporting of significantlosses and known thefts of drugsamples. As discussed previously, theagency believes that the requirementscontained in § 203.31(d)(2)(ii) and(d)(2)(iii), including the requirement foridentifying individual transactionsconducted with drug samples in revised§ 203.31(d)(2)(iii), are necessary to bringpotential drug sample diversionactivities to the attention ofmanufacturers and authorizeddistributors. This objective is consistentwith legislative intent in PDMA.

31. Two comments recommended thatmanufacturers should be permitted touse bar coding that represents theproprietary or established name anddosage strength on the inventory recordand reconciliation report instead ofactual words. One of the comments saidthat such coding is ‘‘easily translated’’into the required information.

The agency advises that it does notobject to the use of bar coding thatrepresents required information in theinventory record or reconciliation reportprovided that the information in such aform can be used by the firm to conductthe reconciliation process and to detectdiscrepancies in inventory and potentialdrug diversion. In addition, the barcoding must be capable of beingtranslated into words and the record orreport must be capable of beingproduced in its entirety upon request byFDA or other Federal, State, or local lawenforcement authorities.

32. Two comments objected to therequirement in proposed§ 203.31(d)(2)(iii) to list the lot orcontrol number in the reconciliationreport. One of these comments statedthat this requirement would not assist indiversion detection because the batchesare so large that significant numbers ofrepresentatives in varying geographicalareas will receive the same batch. Thecomment also stated that ‘‘existingPDMA records’’ make it possible todetermine every physician called on byrepresentatives who could havereceived the lot in question. The othercomment stated that the requirementwould ‘‘have little or no effect inassuring a meaningful inventory,’’ butwould increase difficulty of conductinginventory and preparing the report.

The requirement in proposed§ 203.31(d)(2)(iii) was intended toensure that a manufacturer orauthorized distributor maintains arecord enabling it to track thedistribution of sample units by lot orcontrol number from a representative toa licensed practitioner. Although theagency agrees that such informationwould not necessarily enablemanufacturers or distributors topinpoint the representative responsiblefor distributing a sample unit that hasbeen diverted, it would promoteprecision in tracking samples andfacilitate the location of samples in theevent of a recall or other public healthemergency. Nevertheless, as discussedbelow, the agency has determined thatmanufacturers and authorizeddistributors of record should be free tochoose the types of records used to trackthe distribution of drug sample lots tolicensed practitioners. Therefore, theproposed requirement for inclusion oflot or control numbers in thereconciliation report has beeneliminated in the final rule.

d. Section 203.31(d)(3). Proposed§ 203.31(d)(3) stated: ‘‘The inventoryand reconciliation reports shall beconducted and prepared by personsother than the representatives beinginventoried or superiors or managers intheir department, division, or branch, orin their direct line of supervision orcommand.’’

33. Three comments stated that theproposed requirement represents amisinterpretation of PDMA and itslegislative history regarding section303(b)(4)(B)(ii) of the act. The commentsstated that this section allows amanufacturer the option of performingan independent audit to protect itselffrom civil liability for the acts of itsrepresentatives, but that FDA hasmisconstrued the section to mean that



PDMA requires a yearly, independentaudit of every representative.

The comments apparentlymisunderstand the terms ‘‘inventory’’and ‘‘audit.’’ An inventory is anitemized list or catalog of goods orproperty, usually taken annually. Anaudit is a formal, periodic examinationand checking of accounts or records toverify their correctness. (Webster’s NewWorld Dictionary, 2d College Ed.) Thecomments correctly assert that section303(b)(4)(B)(ii) of the act does notrequire an annual audit of allrepresentatives. However, proposed§ 203.31(d)(3) did not establish an auditrequirement, but rather set forthrequirements concerning whichpersonnel are to conduct the inventoryand reconciliation and prepare theinventory record and reconciliationreport. The proposed requirement wastherefore intended to implement therequirement in section 503(d)(3)(C) ofthe act for an annual inventory of drugsamples in the possession of arepresentative, rather than section303(b)(4)(B)(ii) of the act.

34. Several comments said that theproposed requirement is too costly, andthe ends can be achieved through morecost-effective means. Several commentsstated that since inventory must becompleted onsite, it would be too costlyto require personnel other thansupervisors or managers within thegeographic area of the representative toperform it. On the other hand, thecomments said, reconciliation can beperformed at a central location, thus itis more susceptible to completion byindependent personnel.

Two comments distinguishedinventory from reconciliation by statingthat the former is relatively simple andcan be performed by sales management,while the latter is more complex andshould be done by a personindependent of sales and marketing. Incontrast, another commentrecommended allowing representativesto perform the reconciliation, but notthe inventory function.

One comment recommended allowinganyone but the representative toperform the inventory or prepare thereconciliation report. Several commentsrecommended allowing a salesrepresentative’s direct supervisor ormanager to perform the inventoryfunction because that person is in thebest position to assess the performanceand cooperation of a representative andto initiate corrective actions. Onecomment recommended allowinganyone other than a representative orhis direct supervisor to perform theinventory. Other commentsrecommended allowing a

representative’s district manager toperform the inventory function.

The objective of the proposedrequirement was to guard against errorsand possible fraud in the conduct of thephysical inventory and reconciliation,and in the preparation of the inventoryrecord and reconciliation report, by therepresentative or other interestedparties. Although the agency continuesto believe that this is a legitimate andimportant objective, the agency agreesthat it can be achieved through lessburdensome means than by requiringthe inventory and reconciliation to beconducted by persons other than therepresentatives, their superiors ormanagers, or others in their direct lineof supervision or command.Accordingly, the agency has revised theproposed requirement to permitmanufacturers and distributors to take‘‘appropriate internal control measures’’to guard against error and possible fraudin the conduct of the physical inventoryand reconciliation, and in thepreparation of the inventory record andreconciliation report.

Under the revised requirement,representatives and their supervisorypersonnel may conduct the inventoryand reconciliation functions andprepare inventory records andreconciliation reports. However, theagency expects that appropriate internalcontrol measures will be taken thatinclude implementation of a securityand audit system that is controlled byindependent personnel, i.e., personnelother than the representatives, theirsuperiors or managers, or others in theirdirect line of supervision or command.Under revised § 203.34(b), such asecurity and audit system must follow aplan that ensures that random audits areconducted on representatives bypersonnel independent of the salesforce. In addition, the plan must ensurethat for-cause audits are initiated inresponse to reports, incidents, orfindings identified by the firm asindicating possible drug samplediversion or falsification of sampledistribution records. If necessary, theagency will issue additional guidanceon audit plans and procedures underrevised § 203.34(b).

e. Section 203.31(d)(4). Proposed§ 203.31(d)(4) stated: ‘‘A manufactureror authorized distributor of record shallcarefully evaluate any apparentdiscrepancy or significant loss in itsinventory and reconciliation, and shallfully investigate any such discrepancyor significant loss that cannot bejustified.’’

35. Two comments stated that theword ‘‘apparent’’ should be changed to‘‘significant’’. One comment stated that

since manufacturers are permitted,under § 203.37, to determine whatconstitutes a ‘‘significant loss,’’ theyshould also be allowed to determinewhich discrepancies merit investigation.Another comment recommendedrevising ‘‘apparent discrepancy’’ to read‘‘potentially significant discrepancy.’’

The agency is not requiringmanufacturers and distributors toconduct an investigation every timethere is an apparent discrepancy in arepresentative’s inventory, but ratherthat they evaluate all apparentdiscrepancies. It is only when anapparent discrepancy cannot be justifiedthat an investigation is required.Investigations under thesecircumstances are reasonable andconsistent with the requirement inrevised § 203.37(a) to investigate whenthere is a reason to believe that anyperson has falsified drug sample recordsor is diverting drug samples.Accordingly, the agency declines toamend the requirement.

3. Issues Related to Sample Distributionby Mail or Common Carrier or by aRepresentative or Detailer

a. Sections 203.30(a)(1) and203.31(a)(1). Proposed §§ 203.30(a)(1)and 203.31(a)(1) required that a licensedpractitioner execute and submit awritten request to the manufacturer orauthorized distributor of record toobtain drug samples.

36. One comment stated that a requestform ‘‘creates additional paperwork andexpense without apparent benefitbeyond that obtained by signing areceipt form at the time of delivery ofthe samples.’’

In sections 503(d)(2)(A)(i) and(d)(3)(A)(i) of the act, Congressspecifically required that a drug samplebe distributed only in response to awritten request by a licensedpractitioner to ensure accountability inthe sample distribution process.Sections 203.30 and 203.31 reflect thosestatutory provisions.

37. Another comment soughtclarification on whether the term‘‘written request’’ includes preprintedforms.

Preprinted drug sample request formsare permissible. However, they mustcontain all information required byPDMA and the final regulations, andmust be signed by a licensedpractitioner.

b. Sections 203.30(a)(3) and203.31(a)(3). Proposed § 203.30(a)(3)required that the recipient of a drugsample delivered by mail or commoncarrier return the receipt to themanufacturer or distributor from whichthe drug sample was received. Proposed



§ 203.31(a)(3) required that the receiptfor samples distributed by means otherthan mail or common carrier bereturned to the manufacturer ordistributor.

38. Two comments requestedclarification on whether, if a licensedpractitioner fails to return a receipt, heor she is barred from receiving furthersamples from a manufacturer. Bothcomments argued that the intent ofCongress in enacting PDMA was todetect patterns of nonreturns of receipts.The comments recommended thatlicensed practitioners should not bebarred for isolated failures to returnreceipts, but rather, where a pattern ofnonreturns exists, manufacturers shouldbe required to investigate to see if thesamples actually arrived.

The question of whether a licensedpractitioner should be barred fromreceiving further drug samples forfailing to return drug sample receiptswas not addressed in the proposed rule,and was not addressed directly byCongress. In the legislative history ofPDMA (see H. Rept. 100–76, p. 15),Congress stated: ‘‘Whether thedistributions are made by carrier returnreceipt or business reply cards,manufacturers or distributors would notbe expected to equate each and everydelivery and receipt; however, anadequate monitoring system wouldnecessarily need to detect instanceswhere non-return patterns exist.’’ Thus,there is evidence that Congress was notprimarily concerned with isolatedfailures to return drug sample receipts,but with patterns of nonreturns.Moreover, the overall structure ofPDMA is not intended to penalizepractitioners or prevent them fromreceiving samples, but rather to ensurethat samples are properly distributed tolicensed practitioners. Therefore, theagency believes that Congress did notintend for licensed practitioners to bebarred from receiving samples forisolated failures to return samplereceipts or for isolated instances wherereceipts are not received for reasonsbeyond the practitioner’s control.However, upon detecting a pattern ofnonreturns by a practitioner, amanufacturer or authorized distributorshould not distribute further samplesuntil the matter is thoroughlyinvestigated. Such an investigation may,depending on the circumstances, berequired under § 203.37, since a patternof nonreturns may indicate that arepresentative is falsifying drug samplerequests, that other drug diversionactivity is occurring, or that a significantloss or theft of drug samples hasoccurred.

c. Sections 203.30(b)(1)(ii) and203.31(b)(1)(ii). Proposed § 203.30(b)(1)and (b)(1)(ii) stated: ‘‘A written requestfor a drug sample to be delivered bymail or common carrier to a licensedpractitioner is required to contain thefollowing: * * * The practitioner’sState license number or DrugEnforcement Administrationidentification number.’’ Proposed§ 203.31(b)(1) and (b)(1)(ii) set out thesame requirement for requests for drugsamples delivered by means other thanmail or common carrier.

39. FDA received 15 comments onthese requirements. Many of thecomments supported the overall goal ofthese sections, i.e., to ensure thatpersons requesting drug samples arelicensed practitioners. However, severalcomments stated that State licensenumbers are not always assigned topractitioners who are otherwiseauthorized by State law to prescribedrugs. The comments requestedclarification as to what verification isappropriate for practitioners subject todifferent authorization mechanismsthan physicians.

As was discussed in response to thecomments on the definition of licensedpractitioner, the agency has determinedthat practitioners authorized by Statelaw to prescribe drugs may request andreceive drug samples. Practitioners whoare authorized by a State to prescribedrugs and have no State license numbermay use any number assigned to themby the State that represents that they areauthorized to prescribe drugs. Theagency is not aware of any State thatdoes not assign some type of number topractitioners that it authorizes toprescribe drugs. However, if such a casearises, the agency will consider how toprovide verification at that time.

40. Several comments cited potentialproblems with the use of DEA numbersfor verification. Several comments saidthat not all licensed practitioners, butonly those who prescribe controlledsubstances, are issued DrugEnforcement Administration (DEA)numbers. Other comments stated that,although DEA numbers can be accessedthrough a central data base, this practiceis discouraged by DEA unless acontrolled substance is involved. Onecomment stated that DEA numbers areoften improperly accessed and illegallyused to divert drugs and recommendedthat only State license numbers be used.

The agency has consulted with theDEA on the appropriate use of DEAnumbers for identification purposes.DEA policy is that registration numbersassigned by DEA to licensedpractitioners are to be used only toobtain scheduled drug products, not for

general identification purposes.Accordingly, the agency has modifiedthe requirement in the final rule tospecify that State license orauthorization numbers are to be used onsample request forms generally, andDEA numbers are to be used only whena sample of a scheduled drug product isrequested.

41. Several comments asked forclarification on whether a manufactureror authorized distributor would berequired under this section to verify theState licensing or DEA number on therequest form. One comment stated thatthe provision of a State license or DEAnumber, without verification, would notconfirm that a practitioner is in factlicensed. Other comments opposed arequirement that the manufacturer orauthorized distributor verify the Statelicensing or DEA number. One commentrecommended that the presence of thenumber on a sample request form bedeemed acceptable on its face. Twocomments recommended that instead ofrequiring the manufacturer to verifywhether the requesting person is alicensed practitioner, the personrequesting samples could be required toattest to being a licensed practitioner onthe sample request form, i.e., with theinclusion of a preprinted line next towhere his or her signature would go.Three comments recommended that aninternal number established by themanufacturer after checking arequesting practitioner’s credentials beconsidered acceptable.

FDA has determined that verificationby a manufacturer or authorizeddistributor of the State license orauthorization number, or the DEAnumber as appropriate, is necessary andhas codified the requirement in§§ 203.30(a)(2) and 203.31(a)(2) of thefinal rule. The agency does not believethat allowing a manufacturer to deemacceptable the number on a request formwithout verifying its authenticity wouldoffer any assurance that a personrequesting samples is in fact licensed orauthorized to prescribe drugs. Similarly,an attesting signature on a request formoffers little more assurance that a personis in fact licensed or authorized than anunverified license or authorizationnumber. The agency does believe thereis merit in the suggestion that, once apractitioner’s number is verified by amanufacturer or distributor with a Statelicensing board or the DEA, an internalnumber or other tracking system may bedevised such that the number does nothave to be reverified every time asample is requested by the samepractitioner. However, any list ofverified State license or authorizationnumbers maintained by an authorized



distributor or manufacturer must beupdated at least annually to reflectchanges in license or DEA status.

42. Several comments stated that itwould be difficult for manufacturers toverify State license numbers becausethere is no national data base thatcontains all State licensing numbers,State licensing boards do not possessmechanisms to provide wide-scaleverification services, and methods ofverification vary from State to State.

As discussed in section IV.B of thisdocument, the agency believes that cost-efficient systems for verifying Statelicensing numbers will be madeavailable to manufacturers andauthorized distributors of record in thenear future. Until that time, Statelicensing boards do possess sufficientmechanisms to provide verification thatindividuals are licensed by them. Theagency recognizes that there may besome difficulty associated withverifying State license or authorizationnumbers. However, State licensingnumbers are the only reliable way ofproving that a practitioner is actuallylicensed by a State to prescribe drugs.

43. One comment recommended thatFDA require States to adopt uniformmethods of assigning licensing numbers.

The power to set prescribingrequirements and methods is one thathas traditionally been vested in theStates. The agency does not wish tointerfere with this power by requiringthat States adopt uniform methods ofassigning State licensing numbers.

44. Several comments recommendedthat FDA add the American MedicalAssociation’s Medical Education (ME)number to the list of permissibleverification numbers. The commentsstated that the advantages of thisnumber are that it is centrallyaccessible, it is not subject to change asState license numbers may be, and itincludes at least some nonphysicianpractitioners. Two comments alsorecommended that use of theAssociation of Physician’s Assistantsfile number be permissible.

The agency has concluded that wherea practitioner has a State licensenumber, that number must be used forverification purposes. As discussedabove, nonphysician practitioners whoare licensed, or who are not licensed butare authorized by State law to prescribedrugs, may use any number assigned tothem by the State that represents thatthey are authorized to prescribe drugs.The agency does not believe that othertypes of identification, includingnumbers assigned to healthprofessionals in connection withmembership in professionalassociations, are reliable means of

proving that a practitioner is licensed orauthorized to prescribe drugs.

d. Sections 203.30(b)(1)(iii) and203.31(b)(1)(iii). Proposed§§ 203.30(b)(1)(iii) and 203.31(b)(1)(iii)required that the proprietary orestablished name and strength of thedrug sample requested appear on thesample request form.

45. Two comments requested that theproposed sections be revised to allowbar coding on the request form thatrepresents the name and strength of thedrug sample. Both comments indicatedthat the bar coding would be translatedinto words on the form so that thedoctor would know what he or she wasrequesting.

The agency has no objections toallowing bar coding representinginformation on preprinted samplerequest forms where that information isalso translated into words on the form.However, the bar coding must not coverup or otherwise detract from the abilityof practitioners to read the words on theform.

e. Sections 203.30(b)(1)(v) and203.31(b)(1)(v). Proposed §§ 203.30(b)(1)and 203.31(b)(1) set forth therequirements for contents of writtenrequest forms for delivery of samples bymail or common carrier and byrepresentative, respectively. Proposed§§ 203.30(b)(1)(v) and 203.31(b)(1)(v),which are identical, required that therequest form contain ‘‘the name of themanufacturer and the authorizeddistributor of record, if the drug sampleis requested from an authorizeddistributor of record.’’

46. FDA received four comments onthese sections. One comment objected tothe requirement in § 203.31(b)(1)(v) thatthe names both of the manufacturer andof the distributor be included on therequest form. The comment stated thatthis requirement is redundant since themanufacturer and authorized distributorof record are responsible for knowingeach other, and if a diverted sample isfound, the manufacturer will be able totrace the sample to the authorizeddistributor. Three comments objected tothe requirement in both§§ 203.30(b)(1)(v) and 203.31(b)(1)(v).These comments stated that requiringthe names both of the manufacturer andof the authorized distributor of recordcauses additional recordkeepingburdens, serves no useful purpose, andis contrary to the explicit language ofsection 503(d)(3)(A) of the act.

A distributor may distribute drugsamples under section 503 of the actonly if it is an authorized distributor ofrecord for the manufacturer of the drug.Thus, the ability of a distributor todistribute samples is directly related to

its relationship with the manufacturer.The agency believes that it is reasonableto require that a sample request form foran authorized distributor of recordinclude the name of the manufacturerthat authorizes the distributor todistribute samples. The requirementwill help ensure that the partiesinvolved in and responsible for sampledistribution can be readily identified byFDA and other government agencies.This purpose is consistent withlegislative intent to ensure thatdistributors of drug samples areauthorized distributors of record, andthe agency therefore adopts therequirement in the final rule.

f. Sections 203.30(c)(1) and (c)(2) and203.31(c)(1) and (c)(2). Proposed§§ 203.30(c) and 203.31(c) set forth therequirement that drug sample receiptscontain, among other things, the lot orcontrol number of the drug sampledelivered.

47. FDA received several commentsthat objected to the sample lot or controlnumber requirements andrecommended that they be eliminated.Two of these comments objected to therequirement for representative deliveredsamples only, while the remainingcomments objected to the requirementfor both samples delivered by mail orcommon carrier and by representative.Several comments argued that, underexisting CGMP requirements, therequirement is not necessary becausedistribution of sample lots is tracked bythe manufacturer to the representative,who keeps a record of the practitionersvisited and the samples that aredistributed. Two comments stated thatrecording lot numbers on samplereceipts is an inefficient way of trackingsample lots to the practitioner level, andthat the method of tracking should beleft to manufacturers as long as they canprovide accurate and timely lot specificrecords. Other comments argued thatlots should only have to be trackeddown to the representative level.

The agency believes that the trackingof sample distributions by lot to thelevel of the licensed practitioner isessential both to maintainingaccountability and oversight oversample distribution and to facilitatingrecalls and, therefore, declines toeliminate the proposed requirements onthe ground that samples need only betracked to the representative level. Theagency agrees, however, that recordinglot numbers on drug sample receiptsand other drug sample distributionrecords required under part 203 may notbe the most efficient method of trackingsample lots and that manufacturers andauthorized distributors should be free touse other types of records to accomplish



this purpose. Accordingly, the agencyhas eliminated the requirement toinclude lot or control numbers on drugsample receipts in revised§§ 203.30(c)(1) and (c)(2) and203.31(c)(1) and (c)(2) and onreconciliation reports in revised§ 203.31(d)(2)(iii). Moreover, therequirement under proposed § 203.38(b)to include lot or control numbers on alldrug sample distribution records hasbeen substantially revised. Underrevised § 203.38(b), manufacturers andauthorized distributors of record arerequired to maintain drug sampledistribution records containing lot orcontrol numbers that are sufficient topermit tracking of drug sample units tothe point of the licensed practitioner.Sample distribution records containinglot or control numbers must bemaintained by manufacturers orauthorized distributors whether thesamples are distributed by the mail orthrough representatives.

4. Drug Sample FormsProposed § 203.33 stated:A sample request or receipt form may be

delivered by mail, common carrier, or privatecourier or may be transmittedphotographically or electronically (i.e., bytelephoto, wirephoto, radiophoto, facsimiletransmission (FAX), xerography, or electronicdata transfer) or by any other system,provided that the method for transmissionmeets the security requirements set forth in§ 203.60(d).

Due to the publication of part 11,which supersedes portions of proposed§ 203.60, the security requirements thatapply to paper documents transmittedphotographically, electronically, or byany other system have been modifiedand appear under § 203.60(c) in the finalrule. Section 203.33 has been revised torefer to this section.

5. Policies and ProceduresProposed § 203.34 stated:Each manufacturer or authorized

distributor of record that distributes drugsamples shall establish, maintain, and adhereto written policies and procedures describingits administrative systems for the following:

(a) Distributing drug samples by mail orcommon carrier, including methodology forreconciliation of requests and receipts;

(b) Distributing drug samples by meansother than mail or common carrier includingthe methodology for their independentsample distribution security and auditsystem;

(c) Conducting its inventory of drugsamples under § 203.31(d), including aninventory schedule;

(d) Auditing and detecting falsified orincomplete drug sample records;

(e) Identifying any significant loss of drugsamples and notifying FDA of the loss;

(f) Monitoring any loss or theft of drugsamples; and

(g) Storing drug samples byrepresentatives.

As discussed in section II.G of thisdocument, the requirements inproposed § 203.34 have beenrenumbered and revised in the finalrule. Comments on the proposal areaddressed in light of the revisions.

48. One comment stated that PDMAonly requires manufacturers to developadequate audit and security systems todetect and investigate losses and thefts,not to create and adhere to extensivewritten policies documenting all aspectsof the drug sampling process. Thecomment stated that a manufacturershould not be subject to liability forfailing to have a written corporate-widepolicy on the subject matter covered bythe proposed rule.

The agency believes that the creationof internal policies by a manufacturer orauthorized distributor of record toachieve the statutory objectives isimportant to the attainment of thoseobjectives. PDMA sets forthrequirements that manufacturers andauthorized distributors of record reportsignificant losses and thefts of samples,that manufacturers’ and authorizeddistributors’ representatives beinventoried at least annually, and thatdrug samples be subject to properstorage conditions. In addition, PDMA’slegislative history indicates thatCongress intended that manufacturersand authorized distributors have auditand security systems in place to detectlosses and thefts, as well as falsified orincomplete drug sample records. (H.Rept. 100–76, p. 20, S. Rept. 100–202,p. 9.) Accordingly, the agency believesthat it is authorized to implementspecific requirements regardingprocedures and systems to accomplishthese legislative objectives. However,the agency believes that industry shouldhave the flexibility to develop its ownprocedures and systems, as long as suchprocedures and systems are documentedand followed.

49. One comment stated that, underPDMA, a manufacturer is already liablefor 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 toensure that significant losses of samplesare detected.

Section 301(t) of the act subjectsmanufacturers and authorizeddistributors to civil and criminalpenalties for failure to report significantlosses and thefts as required undersection 503(d)(3)(D) of the act. While theagency recognizes that this provisionprovides incentive for a manufacturer orauthorized distributor to identify and

investigate potential cases of diversion,it does not ensure that effective writtenprocedures and administrative systemsare in place to do so.

50. Another comment requested thatthe requirement in proposed § 203.34(c)for an inventory schedule be flexible sothat a procedure committing to conducta field force inventory at least yearlywould be sufficient.

Administrative procedures adoptedby manufacturers and authorizeddistributors of record must be adequateto ensure compliance with PDMA andagency requirements. With respect tothe requirement in revised § 203.34(b)(2)for written policies and proceduresdescribing administrative systems forconducting the annual physicalinventory, the administrativeprocedures must ensure that allrepresentatives are inventoried at leastonce a year in accordance with therequirements of § 203.31(d) and section503(d)(3)(C) of the act.

6. Use of Third Partiesa. Section 203.36(a). Proposed

§ 203.36(a) stated:Any manufacturer or authorized distributor

of record that uses a fulfillment house,shipping or mailing service, or other thirdparty, or engages in a comarketing agreementwith another manufacturer or distributor todistribute drug samples or to meet any of therequirements of PDMA, PDA, or this part,remains responsible for creating andmaintaining all requests, receipts, forms,reports, and records required under PDMA,PDA, and this part.

51. One comment supported thesection as written. Several commentsrequested clarification on whether themanufacturer or authorized distributormust itself create and maintain formsand records or ensure propercompliance by the third party. Severalcomments objected to the formerinterpretation on the ground that itwould require so much involvement bythe manufacturer or authorizeddistributor in the day-to-day operationsof the third party that it wouldeffectively preclude companies fromusing third parties.

The agency clarifies that amanufacturer or authorized distributorof record that uses a third party todistribute drug samples or meet anyrequirements of PDMA or the final rulemay have the third party create andmaintain required requests, receipts,forms, reports, and records. Forexample, a shipping company thatdelivers samples would be permitted touse its own delivery verificationreceipts and to maintain those receiptsfor the manufacturer or authorizeddistributor. However, the manufactureror authorized distributor is responsible



for ensuring that the third partycomplies with all requirements underPDMA and the final rule. In theprevious example, if all of theinformation required in § 203.30 is notcontained on the shipping company’sreceipt, the manufacturer or authorizeddistributor is responsible forcompliance, and thus liable fornoncompliance, with § 203.30.

Additionally, the agency is aware thatsome drug manufacturers contract withan ‘‘outside’’ promotional sales forcerather than maintaining an ‘‘in-house’’one. These representatives, known inthe industry as ‘‘contractrepresentatives,’’ qualify as third partiesunder this section. Since contractrepresentatives may be paid accordingto the number of samples distributed,firms using their services should beparticularly vigilant concerning thepossibilities for sample diversion andsample request and receipt formfalsification.

52. One comment requestedclarification as to whether, if amanufacturer enters into a comarketingagreement with another manufacturerfor the distribution of samples by itsrepresentatives, the comarketer wouldthereby become an authorizeddistributor of record and would thus beresponsible for creating and maintainingits own reports, forms, and records.Another comment contended thatcomarketers could qualify asmanufacturers or authorized distributorsof record and recommended that thefinal rule be revised to makecomarketers who are themselvesmanufacturers or authorized distributorsresponsible as such for compliance withPDMA.

As the agency explained under thecomments on the definition of ‘‘ongoingrelationship,’’ a comarketer, samplefulfillment house, or other entity thatperforms sample distribution functionsother than delivery or functions that areincidental to delivery is engaged in‘‘distribution’’ of drug samples andmust, under section 503(d) of the act, bean authorized distributor of record.Authorized distributors of record areresponsible for complying with allrequirements for sample distributionunder PDMA and the final rule,including creating and maintaining allrequired requests, receipts, forms,reports, and records. Thus, if amanufacturer or authorized distributorcontracts with a third party which itselfbecomes an authorized distributor ofrecord, the manufacturer or authorizeddistributor and the third party are bothresponsible for compliance with PDMArequirements.

b. Section 203.36(b). Proposed§ 203.36(b) stated that a manufacturer orauthorized distributor of record thatcontracts with a third party to maintainsome or all of its records shall producerequired documents within 48 hours ofa request by an authorizedrepresentative.

53. Several comments stated that 48hours is not enough time to producerequired documents. Three commentsrecommended that the section berevised to allow 5 working days forproduction of records. One commentstated that a manufacturer should beexcused from penalty when requestedinformation in the storage of a thirdparty is not produced within 48 hoursby reason of ‘‘unanticipated eventsbeyond the reasonable control of eitherthe drug manufacturer or the contractor(i.e., a force majeure defense).’’ Thecomment stated that, at a minimum, thesection should be amended to provide48 business hours to comply.

In response to the comments, theagency has revised proposed § 203.36(b)to require the production of recordsmaintained by a third party within 2business days of a request, rather than48 hours. The agency believes that thisperiod should be sufficient given thefact that most records are maintainedelectronically and can be quickly andeasily retrieved and transmitted to thelocation where they are requested.

7. Investigation and NotificationRequirements

a. Section 203.37(a)(1) and (a)(2).Proposed § 203.37(a)(1) stated:

A manufacturer or authorized distributor ofrecord that has reason to believe that anyperson has falsified drug sample requests,receipts, or records shall conduct a full andcomplete investigation, and shall notify FDA,by telephone or in writing, within 5 workingdays of becoming aware of a falsification andwithin 5 working days of the completion ofan investigation.

Proposed § 203.37(a)(2) stated: ‘‘Amanufacturer or authorized distributorof record shall provide FDA with acomplete written report, including thereason for and the results of theinvestigation, not later than 30 daysafter the date of the initial notification.’’

The agency, on its own initiative, hasreformatted proposed § 203.37(a)(1) and(a)(2) into § 203.37(a)(1), with threesubsections. The agency believes thatthe new format is clearer and easier tounderstand.

54. FDA received 10 comments onthese sections addressing the followingissues: (1) The circumstances underwhich a manufacturer or authorizeddistributor should be required toinvestigate, (2) the time period tocomplete investigation, (3) when and

under what circumstances amanufacturer should be required to givenotice to FDA, and (4) the form of thenotice and reporting requirements.

Two comments addressed the level ofsuspicion of falsification that isnecessary to trigger the investigationrequirement. One comment said that the‘‘reason to believe’’ language thatappears in § 203.37(a)(1) creates astandard that is ‘‘vague and difficult tointerpret.’’ Another comment stated that‘‘reason to believe needs to be definedso that a manufacturer will not besecond guessed.’’ Another commentstated that the proposed rule does notdefine what constitutes ‘‘falsification,’’and that variances in a representative’sreported numbers do not usually giverise to a ‘‘reason to believe’’ that afalsification has occurred, requiringinvestigation and notice, but rather thata representative has poor work habits.The comment stated that requiringinvestigation of every variance would be‘‘unrealistic.’’

Instances of potential falsifications aremost likely to come to the attention ofmanufacturers or authorized distributorsthrough discrepancies that areuncovered during the required annualinventory and reconciliation. However,it is possible that other events oroccurrences, some foreseeable and somenot, may bring potential falsifications tothe attention of a manufacturer ordistributor. The agency has determinedthat the reason to believe standard,while not capable of precise definition,is flexible enough to cover themultiplicity of situations in whichpotential falsification is brought to light.Moreover, the standard is one that canbe applied by manufacturers andauthorized distributors using commonsense and good judgment. While theagency does not expect manufacturersand authorized distributors toinvestigate every slight discrepancy, theagency would require investigationunder this standard where a pattern ofdiscrepancies exists or where otherreliable information indicates thatrecords have been falsified.

55. Another comment said that thecircumstance that triggers theinvestigation requirement should bediversion, not falsification. Thatcomment also stated that theinvestigation requirement should applyonly to a manufacturer’s or authorizeddistributor’s employees’ misconduct,not to any person.

The drug sample recordkeepingrequirements were instituted to helpensure that drug diversion schemescould be detected. The agency believesthat patterns of falsification of drugsample requests, receipts, or records,



while not conclusive, are highlyprobative that drug sample diversion istaking place. Thus, the agency declinesto follow the recommendation thatknowledge of diversion precedeinvestigation.

The agency recognizes, however, thatcircumstances other than recordfalsification may be indicative that drugsample diversion is occurring.Accordingly, the agency has revisedproposed § 203.37(a) to requirenotification, investigation, and reportingwhere a manufacturer or authorizeddistributor of record has reason tobelieve that any person is divertingprescription drug samples.

Finally, the agency believes that themanufacturer or authorized distributorof record is in the best position to detectpotential diversion not only by its ownemployees, but by other persons, suchas contract representatives. Accordingly,the agency has determined thatmanufacturers and authorizeddistributors must investigate when theyhave reason to believe that any personhas falsified drug sample records or hasdiverted drug samples.

56. Two comments stated that PDMAstatutory requirements did not makefalsification of drug sample recordsreportable to FDA.

Although PDMA did not expresslymake falsification of drug samplerecords reportable to FDA, the agencyhas determined that such notice isnecessary and furthers the legislativeintent in PDMA. Persons who falsifydrug sample requests, receipts, orrecords may be criminally prosecutedunder sections 301 and 303 of the act,and under Title 18 of the United StatesCode. Because FDA is responsible forenforcing PDMA, it is necessary that theagency have all pertinent informationregarding such potentially criminalconduct. Moreover, Congress didexplicitly make significant losses andknown thefts reportable to FDA,presumably because such losses andthefts indicate possible samplediversion activity. (See S. Rept. 100–303, p. 6, H. Rept. 100–76, p. 16.) Asdiscussed previously, the agencybelieves that falsifications of drugsample records are highly probative thatdrug diversion is taking place. Thus, theagency has determined that it isconsistent with congressional intent thatthe agency be made aware of suchfalsifications, as well as other activitythat is indicative of drug samplediversion, to enable FDA to monitorcompliance with PDMA.

57. One comment noted thatstatements made in the preamble to theproposal (59 FR 11842 at 11851)conflicted with proposed § 203.37(a)(1).

The comment stated that the proposal’spreamble indicated that notice would berequired to be provided to FDA when aninvestigation is initiated. However,proposed § 203.37(a)(1) does not requirenotice until ‘‘within 5 working days ofbecoming aware of a falsification.’’According to the comment, the noticediscussed in the preamble may precedethe notice required under the proposedregulation.

The agency acknowledges that thenotice discussed in the preamble of theproposal (59 FR 11842 at 11851) isdifferent than the notice that would berequired under the proposed regulation.The agency has revised proposed§ 203.37(a)(1) and (a)(2) to require thata manufacturer or authorized distributorof record that has reason to believe thatany person has falsified drug samplerequests, receipts, or records, or isdiverting drug samples must notify FDAwithin 5 working days, immediatelyinitiate an investigation, and submit awritten report to FDA within 30 daysafter the date of the initial notification.Thus, the requirement in proposed§ 203.37(a)(1) that a manufacturer ordistributor notify FDA within 5 workingdays of becoming aware of a falsificationand within 5 working days of thecompletion of an investigation has beeneliminated. The agency believes that theprovision of a single notice to FDA nearthe time when an investigation isinitiated is sufficient.

58. One comment said that firmsshould be required to provide notice toFDA only in ‘‘situations wheresubstantial evidence of apparentattempts to conceal diversion of samplesexists.’’ Another comment stated thatnotice should not be required until a‘‘strong probability’’ of falsification isindicated by an investigation. Severalcomments stated that, except for a finalwritten report submitted at thecompletion of an investigation revealingthat falsification has in fact occurred, nonotice should be required. One of thesecomments stated that it would be‘‘improper and unfair’’ to implicateemployees in falsification before all ofthe facts are known and an informedjudgment can be made with respect toresponsibility. One commentrecommended that a written reportshould be made available, but notautomatically submitted, to FDA.

The agency believes that themanufacturer or authorized distributor,through its own investigation, is in thebest position to determine whetherfalsification has occurred. However, forenforcement purposes, it is necessarythat FDA be notified when there isreason to believe that there has been afalsification to ensure that an

investigation is actually undertaken.Moreover, the provision of notice toFDA at the initiation of an investigationwill establish a point from which tojudge whether the investigation iscompleted in a timely manner. Thus,the agency disagrees with therecommendation that notice should notbe provided to FDA until aninvestigation is completed and a strongprobability of records falsification existsor until records falsification isconfirmed. In addition, submission of afinal written report to FDA stating thereasons for and the results of aninvestigation is necessary, even wherefalsification has not been found, topermit FDA to determine whether thecircumstances were adequatelyinvestigated and explained.

59. One comment stated that reportsof some complex cases could requiremore than 30 days to complete andrequested that the proposed rule berevised to allow for 30 days, except in‘‘unusual circumstances.’’ Anothercomment recommended allowingcompletion of the investigation within a‘‘reasonable time,’’ while anotherrecommended that there should be notime restriction for the submission of afinal report.

The final rule as revised givesmanufacturers 30 days to complete aninvestigation of possible falsificationand to submit a written report. Theagency believes that this amount of timeis more than adequate in all but themost complex cases. In such cases, apreliminary report may be submitteddescribing the investigative measurestaken, a summary of the findings of theinvestigation up to that time, the natureof the ongoing investigation, and thereasons the investigation was notcompleted within the required time.

b. Section 203.37(b)(1) and (b)(2).Proposed § 203.37(b)(1) stated:

A manufacturer or authorized distributor ofrecord that distributes drug samples or acharitable institution that receives donateddrug samples from a licensed practitionershall notify FDA, by telephone or in writing,within 5 working days of becoming aware ofany significant loss or known theft of drugsamples and within 5 working days of thecompletion of an investigation into a reportof a significant loss or known theft.

Proposed § 203.37(b)(2) stated: ‘‘Amanufacturer or authorized distributorof record shall provide FDA with acomplete written report not later than30 days after the date of the initialnotification.’’

On its own initiative, the agency hasreformatted and revised these sectionsinto a single section, § 203.37(b)(1), withthree subsections. The revised sectioneliminates the requirement in proposed§ 203.37(b)(1) for notice to be given to



the agency within 5 days of thecompletion of an investigation ofsignificant loss or known theft, butotherwise retains and clarifies therequirements in proposed § 203.37(b)(1)and (b)(2).

60. Two comments recommendedrevision of proposed § 203.37(b)(1) toextend the time a manufacturer orauthorized distributor has to notify FDAafter becoming aware of a significantloss or theft, with no notificationrequired if subsequent investigationreveals no loss or theft. One of thecomments said that it would not bepossible to differentiate insignificantaccounting mistakes and actual losseswithin 5 days of learning of aninventory discrepancy and that therequirement would cause too many falsealarms.

Unlike falsifications of drug samplerecords, the agency requires notice ofsignificant losses and known thefts onlywhen a manufacturer or authorizeddistributor ‘‘becomes aware’’ of suchlosses or thefts. Thus, the level ofcertainty under which notice andinvestigation are required is higher forlosses and thefts than it is forfalsifications. Consequently, amanufacturer or authorized distributorshould have already differentiatedinsignificant accounting mistakes andactual losses before notice is given toFDA. Thus, the agency believes that 5working days from the time that amanufacturer or authorized distributorbecomes aware of losses or thefts issufficient to provide notice to FDA oflosses or thefts.

61. Two comments recommendedallowing 45 days after becoming awareof significant losses during shipmentbefore notice is required, because suchapparent losses of drug samples oftenshow up during that time period.

The agency declines to follow therecommendation of the comments.Potential significant losses that occurduring shipping must be investigatedand reported like other significantlosses. When samples thought to be lostor stolen during shipping are laterfound, a followup report should bemade to the agency describing thecircumstances of the recovery and thequantity of samples that were recovered.

62. In the preamble to the proposedrule (59 FR 11842 at 11851), the agencystated: ‘‘The reporting of any significantloss of drug samples is critical to thesuccess of diversion control. * * * FDAintends this requirement to mean thatthe agency is to be advised of actual,physical losses, but not insignificantaccounting mistakes.’’ FDA stated that itwas aware of the difficulty ofestablishing a threshold for significant

loss and solicited comment on how todistinguish between significant lossesand minor accounting or inventoryerrors. The agency did not propose toestablish a tolerance level for samplelosses below which no report isrequired, and stated that eachmanufacturer or distributor is requiredto establish its own threshold fordetermining when inventory notaccounted for is significant.

One comment stated that losses mayoccur in several ways, including lossesof shipments in transit, loss byrepresentatives, and unexplainedinventory discrepancies. The commentstated that, for shipping losses, it maybe appropriate for companies to set adollar amount above which a single lossis considered significant. This amountwould vary by company and would bedependent on the size of the company,number of representatives, and size andvalue of its total inventory. Thecomment stated that shipping lossesshould also be viewed cumulativelyover a ‘‘fixed, rolling period of time’’ todetermine if there is a pattern of lossesthat might indicate diversion. Regardingunexplained inventory shortages, thecomment stated that each companyshould be required to establish its ownthreshold for determining wheninventory not accounted for issignificant. Inventory discrepancies thatcan be shown to be caused by math oraccounting errors or mistakes that canbe reconciled should not be reported.The comment stated that there are threesignificant loss scenarios that mayindicate possible diversion: (1) A singleloss that exceeds a company’spredefined threshold; (2) the number ofloss events over a fixed, rolling periodexceeds the company’s threshold; or (3)the volume of losses over a fixed, rollingperiod exceeds the company’sthreshold.

One comment stated that loss of acertain quantity of one drug samplewith a high potential for diversion maybe significant, while the loss of the samequantity of another sample with a lowpotential for diversion may not besignificant. Therefore, the commentasserted, no universally applicablethreshold can be established and a case-by-case analysis must be employed.

One comment requested that FDAclarify that not all physical losses aresignificant.

The agency agrees with the firstcomment that different methods fordetermining whether a loss is significantmay be used depending on the type ofloss involved. For single loss events(i.e., ‘‘physical’’ losses) including lossesby representatives (except for lossesreported as thefts, which must all be

reported and investigated) and losses ofdrug samples in transit, establishing apredefined threshold based on a setdollar amount or other criteria, such asa fixed number of sample units, may beappropriate. The size of themanufacturer or authorized distributorof record, the number of representatives,and size and value of a firm’s totalinventory, as well as a firm’s pastexperience with sample losses, arerelevant factors in determining the levelof the threshold. However, the agencyalso agrees with the second commentthat firms should remain responsive tothe individual circumstancessurrounding a single loss event, such asthe loss of a drug with a particularlyhigh potential for diversion, todetermine whether a loss is significanteven though the size of the loss does notmeet the firm’s predefined threshold.

Regarding potentially significantlosses that are revealed throughunexplained inventory shortages, theagency stated in the preamble to theproposed rule that it does not seek toreceive reports concerning minormathematical errors that are caught andcorrected in the normal course ofbusiness. The agency stated that firmsare required to establish their ownthreshold for distinguishing betweeninsignificant accounting mistakes andsignificant losses in inventory shortagesbased on the firm’s past experience insample distribution and inventory andthe level of accuracy of its internal auditand security system. The agency alsostated that some manufacturers ordistributors might be able to set a‘‘historically validated statisticalbaseline’’ for minimal amounts ofinventory shrinkage caused by routineaccounting errors, mistakes, or losses,and a statistical baseline for thefrequency of occurrences (59 FR 11842at 11851). The views expressed by thesecond comment regarding discerningsignificant losses from inventoryshortages thus appear to be consistentwith those previously set forth by theagency.

63. One comment supportedpermitting manufacturers anddistributors to establish their ownthresholds for determining wheninventory not accounted for issignificant, but said that it wasconcerned about being second-guessedby the agency in determining whatconstitutes a significant loss. Thecomment recommended that FDAclarify within proposed § 203.37 that itwould not challenge a manufacturer forfollowing its own definition ofsignificant loss.

The agency declines to revise theproposal to state that it will not



challenge a manufacturer for followingits own definition of significant loss.However, the agency advises that a firmcan best ensure that no enforcementaction will be taken against it forviolation of § 203.37(b) where itestablishes a system for reporting andinvestigating significant losses that isconsistent with the guidance providedin this notice and in the proposed rule.Additionally, where a manufacturer ordistributor is unsure about whether aloss is significant, it should report andinvestigate the loss as if it weresignificant.

64. One comment stated that FDAshould not give manufacturers ordistributors any discretion to definewhat constitutes significant loss, butrather should define it for them.

As explained previously and in theproposal (59 FR 11842 at 11851), thethreshold level of what constitutes asignificant loss will necessarily varydepending on such factors as the size ofa company and the value of its totalinventory, the accuracy of amanufacturer’s or distributor’s systemfor tracking sample distribution, and thecircumstances surrounding the loss.Thus, the agency declines to codify adefinition of significant loss.

65. One comment expressed concernthat virtually all losses would have to bereported under the significant lossstandard as described by the agency inthe proposal and recommended thatsignificant loss be defined as apercentage of total sales or supplies.

The agency believes that it hasprovided sufficient guidance in theproposed rule and in this notice abouthow to distinguish between routinelosses and significant losses that need tobe reported and investigated. Thus, theagency disagrees that all or virtually alllosses will have to be reported andinvestigated and declines to set athreshold based on percentage of totalsales or supplies above which a loss willbe considered significant.

c. Section 203.37(d). Proposed§ 203.37(d) stated: ‘‘* * * Amanufacturer or authorized distributorof record that distributes drug samplesshall inform FDA in writing within 30days of selecting the individualresponsible for responding to a requestfor information about drug samples ofthat individual’s name, businessaddress, and telephone number.’’

66. One comment sought clarificationon whether the information required bythis section is ‘‘for a regulatory agencyand PDMA information or informationfor a potential customer-doctor orpatient.’’

FDA clarifies that the informationrequired by this section is to facilitate

requests for drug sample information byFDA and Federal, State, and localregulatory and law enforcementofficials.

8. Sample Lot or Control Numbers;Labeling of Sample Units

a. Section 203.38(a). Proposed§ 203.38(a) stated: ‘‘The manufacturer orauthorized distributor of record of adrug sample shall include in thelabeling of the drug sample and thelabel of the sample unit an identifyinglot or control number that will permitthe tracking of the distribution of eachdrug sample unit.’’

67. Two comments stated that thestatement ‘‘identifying lot or controlnumber that will permit the tracking ofthe distribution of each drug sampleunit’’ could be interpreted to mean thateach drug sample unit would require itsown identifying number. The commentsrequested that the agency clarify thattracking is required only of lots, not ofsample units.

FDA clarifies that the section isintended to require only the tracking ofsample units by the lot from which theycame, and does not require that eachsample unit receive its own identifyingnumber.

68. Several comments requestedclarification on whether the lot orcontrol number is required to appearonly on the external packaging ofsample units or on all labeling asdefined in 21 CFR part 201, includinginserts and circulars. Several commentsobjected to the latter interpretation onthe grounds that such a requirementwould be costly and would not aid inthe prevention of drug diversion. Onecomment, for example, stated thatpackage inserts would probably bediscarded by individuals engaged indiversion. Several comments stated thatinserts are currently not lot-specific andthat customizing inserts to lots would beextremely expensive. One commentstated that requiring lot numbers onpackage inserts would not benefit recallprocedures.

The section as proposed wouldrequire lot or control numbers to appearboth on sample unit labels and on otherdrug sample labeling. Inserts andcirculars are labeling as defined insection 201(m) of the act. However, theagency agrees with the comments thatrequiring lot or control numbers toappear on package inserts, circulars, orsimilar labeling is not necessary. Thesection has been revised to require thatthe lot or control number appear onlyon the label of the sample unit itself,and on the outside container orpackaging of the sample unit, if any, in

accordance with section 201(k) of theact.

b. Section 203.38(c). Proposed§ 203.38(c) stated, in relevant part, that‘‘each sample unit shall bear a label thatclearly denotes its status as a drugsample, e.g., ‘sample,’ ‘not for sale,’‘professional courtesy package.’’’

In the preamble to the proposed rule(59 FR 11842 at 11855), the agencyidentified ‘‘starter packs’’ asprescription drug products distributedwithout charge by manufacturers ordistributors to pharmacists with theintent that pharmacists place the drugsin stock and sell them at retail. Theagency stated that starter packs areintended for sale and therefore do notmeet the statutory definition of a drugsample. Since the publication of theproposed regulations, the agency hasbecome aware of the use of the terms‘‘starter,’’ ‘‘starter samples,’’ and‘‘patient starter pack’’ to refer to drugsample units. Because the agency doesnot consider starter packs (as describedpreviously) to be drug samples, the useof the term ‘‘starter’’ on drug samplelabeling is inappropriate and should notbe used.

69. One comment stated that theproposed requirement goes beyond theintent of Congress in PDMA and that itwould not deter diversion because thecontents may be removed from the drugpackage.

Designating a sample unit as a sampleis the only way to distinguish drugproducts manufactured for sale fromdrug samples. Because Congressprohibited the sale, purchase, or trade ofdrug samples, or the distribution ofsamples in a manner that is inconsistentwith section 503 of the act, therequirement clearly is consistent withand furthers legislative intent. Althoughthe requirement does not provide afoolproof method of preventingdiversion, the requirement will helpdeter sample diversion by denyingdiverters a market-ready product.

70. One comment recommended, asan alternative to isolating amanufacturing run of labels, thatmanufacturers be permitted to useadhesive stickers that could be placedon the outside containers of sampleunits otherwise labeled for retail.

The agency will not object to the useof stickers provided that a sticker isapplied to both the label of the sampleunit and the outside container orpackaging of the sample unit, if any, inaccordance with § 203.38(a). However,to avoid giving diverters a market-readyproduct, any stickers should be difficultto remove and their removal should beevident. The agency recommends more



durable methods of identifying a sampleproduct, such as overprinting.

71. Several comments opposed therequirement in proposed § 203.38(c) onthe grounds that it would entail toomuch expense.

It is the agency’s experience that thepackaging of sample units currentlyused by the majority of manufacturersalready identifies the units as samplesthrough the use of terminology such as‘‘not for sale’’ or ‘‘professional useonly.’’ Such wording meets the intent ofthis section. Moreover, as discussedunder the previous comment,manufacturers may place an adhesivesticker on the label of a retail unit andon the outside container or package ofthe unit, if any, designating the retailunit as a sample. Therefore, the agencyis unconvinced that this requirementwould impose a financial hardship onthe majority of manufacturers.

72. One comment objected to theproposed rule as it relates to thedistribution of radiopharmaceuticalsamples. The comment stated thatprohibiting manufacturers fromsupplying radiopharmaceutical samplesin retail packages would be undulyburdensome because of the smallnumbers of such samples that aredistributed. The commentrecommended thatradiopharmaceuticals be exempt fromthe requirement.

As discussed previously,manufacturers may place an adhesivesticker on the label of a retail unit andon the outside container or package ofthe unit, if any, designating it as asample. The agency believes that this issufficient to address the concerns raisedby the comment and declines to createthe requested exemption.

73. One comment stated that theincreased costs associated with thelabeling requirement would affect theability of manufacturers to providedrugs free of charge to indigent patients.

As discussed in the proposal (59 FR11842 at 11855), there are somecircumstances in which prescriptiondrugs that are provided free of chargewill not be considered samples undersection 503(c)(1) of the act and§ 203.3(i). The example given was ofprescription drugs provided at nocharge to licensed practitioners for thetreatment of indigent patients where themain object is to ensure that patients inneed of prescription drugs have accessto them (whatever their financialcircumstances) and not to promote thedrugs. According to informationavailable to the agency, thesemanufacturer-sponsored indigentpatient programs generally includeappropriate controls, documentation,

and verification of the distribution anduse of these products. Therefore, suchdrugs would ordinarily not be requiredto be labeled in accordance with§ 203.38(c). Moreover, even where drugsare distributed for a promotionalpurpose and § 203.38(c) applies, theagency does not believe, for the reasonsdiscussed in response to comment 71,that the labeling requirement willimpose a financial burden large enoughto affect the ability of manufacturers toprovide drugs free of charge to indigentpatients.

74. One comment requested a 3-month grace period after the effectivedate of the regulations in whichnonlabeled sample units already in thepossession of manufacturers could beused.

As discussed in section II.K of thisdocument, the agency has determinedthat the provisions in the final rule willnot become effective until 1 year afterthe date of publication of the final rulein the Federal Register. Thus, theagency believes that manufacturers andauthorized distributors will have ampletime from the publication of the finalrule to its effective date to come intocompliance.

75. One comment recommended thatthe proposed regulation be rewritten torequire that a drug sample label includethe terms ‘‘sample’’ or ‘‘professionalsample’’ and to allow, in addition tothese terms, such terms as ‘‘not for sale’’or ‘‘professional courtesy package.’’

The wording used in proposed§ 203.38(c) was intended to beillustrative only. Any words that clearlydesignate a sample unit as a sample maybe used. As discussed previously, theterm ‘‘starter’’ does not designate asample unit as a sample, and should notbe used.

9. Retail Pharmacies and Drug SamplesIn the preamble to the proposal (59 FR

11842 at 11853), the agency explainedthat by limiting the distribution ofsamples to licensed practitioners and tohospitals or health care entitypharmacies at the request of a licensedpractitioner, but not to retailpharmacies, Congress clearly expressedits intent to not allow the distribution ofsamples to retail pharmacies. Underproposed § 203.40, the presence in aretail pharmacy of any drug samplewould have been considered evidencethat the drug sample was obtained bythe retail pharmacy in violation ofsection 503(c)(1) of the act.

76. One comment opposed proposed§ 203.40, stating that ‘‘there is nostatutory or evidentiary basis forcreating this presumption.’’ Thecomment also stated that FDA, as a

Federal agency, lacks the authority toshift the burden of proof in anenforcement proceeding.

The agency has decided to withdrawproposed § 203.40 from the final rule.However, the agency continues tointerpret the act to prohibit thedistribution of drug samples by amanufacturer or distributor to a retailpharmacy and the receipt of a drugsample by a retail pharmacy from anyperson. Moreover, the agency believesthat the presence of drug samples in aretail pharmacy is probative thatsamples are being sold, purchased,traded, or distributed in violation of theact. Therefore, the agency mayinvestigate the presence of drug samplesin a retail pharmacy to determine ifother violations warranting enforcementaction exist.

77. Three comments objected to theprohibition on the distribution of drugsamples to or the receipt of drugsamples by retail pharmacies. Twocomments stated that the prohibitionwould prevent pharmacists fromproviding drug counseling to patients.One comment stated that counseling isimportant because physicians are notaccustomed to counseling patients towhom they give drugs. Anothercomment asserted that pharmacist-patient counseling improves compliancewith drug therapy and reduces overallhealth care costs. Two comments statedthat retail pharmacies should beallowed to store and dispense samplesat the direction of a physician becausepharmacies are designed for drugstorage and physicians’ offices are not.

The agency recognizes that properstorage and handling of prescriptiondrugs and adequate counseling inconnection with prescription drug useare important concerns. However, theagency believes that both of these goalscan and must be accomplished withinthe system of sample distributionestablished by Congress in PDMA. Asdiscussed previously, under this system,drug samples may not be distributed toretail pharmacies and retail pharmaciesmay not receive such samples.

78. One comment objected to the factthat physicians are not permitted to givesamples to or to request that samples besent to a retail pharmacy, although theyare expressly permitted to request thatsamples be sent to hospital or healthcare entity pharmacies. The commentargued that, except in two States, allpharmacists receive the same type oflicense regardless of practice setting.The comment also stated that allpharmacists, regardless of practicesetting, independently dispense drugs topatients in accordance with a writtenprescription. The comment



recommended either that all types ofpharmacies should be permitted toreceive samples at the direction of alicensed practitioner or none should bepermitted.

The agency declines to follow therecommendation of the comment.PDMA expressly provided that hospitalor health care entity pharmacies mayprovide drug samples to patients at thedirection of a licensed practitioner.Moreover, PDMA provided thatmanufacturers and authorizeddistributors of record may distributedrug samples to hospital or health careentity pharmacies at the request of alicensed practitioner. Thus, Congressclearly expressed its intent to allowhospital or health care entitypharmacies to receive and dispensedrug samples. No such intent is evidentwith respect to retail pharmacies.

79. One comment stated that notpermitting retail pharmacies to storeand to dispense samples at the directionof a physician is inconsistent withagency policy, as expressed in thepreamble to the proposal, allowingdistribution of prescription drugsthrough retail pharmacies to indigentpatients.

The proposal (59 FR 11842 at 11855)did not address dispensing prescriptiondrugs to indigent patients through retailpharmacies. It discussed thecircumstances whereby manufacturersmake arrangements to provideprescription drugs to licensedpractitioners to prescribe and dispenseat no cost or at reduced cost to indigentpatients of those practitioners. Aspreviously stated, such drugs willordinarily not be considered samples.Therefore, a licensed practitioner maydirect such drugs to be distributed toand dispensed by a retail pharmacy.

10. Permissible Uses of Drug Samples byLicensed Practitioners

In the preamble to the proposal (59 FR11842 at 11852), the agency describedthe permissible uses of drug samples bylicensed practitioners by stating:

FDA advises that PDMA and this proposedrule would permit a licensed practitioner to:(1) Dispense the drug sample as set forth insection 503(d)(1) of the act; (2) donate thedrug sample to a charitable institution asprovided for in proposed § 203.39; (3) returnthe drug sample to the manufacturer ordistributor; or (4) destroy the drug sample.

80. One comment requested that theproposed rule be revised to permit alicensed practitioner to give drugsamples to a requesting manufacturerfor stability testing and other qualitytesting. The comment stated that amanufacturer should be allowed torequest and retrieve both its ownsamples and the samples of other

manufacturers for this purpose.According to the comment, allowingmanufacturers to retrieve samples fortesting would further the purposes ofPDMA legislation by ensuring that drugsamples in the possession of licensedpractitioners are safe and effective. Thecomment stated that, under theproposed rule, there are no regulatorycontrols on the handling and storage ofdrugs in the possession of licensedpractitioners. The comment stated thatby obtaining and analyzing drugsamples that have been stored inpractitioners’ offices under actualconditions of use, manufacturers will beable to improve packaging design toensure the stability of drug samples. Thecomment also stated that allowingmanufacturers to obtain and analyzesamples ‘‘raises minimal, if notnonexistent, risk of samples beingdiverted into secondary commerce.’’

As stated in the proposal, the agency’spolicy is to permit licensed practitionersto return drug samples to themanufacturer or distributor from whichthey were obtained. Although theagency had originally only consideredthe scenario in which the licensedpractitioner would initiate such returns,the agency clarifies that a request by amanufacturer to a practitioner for returnof its own samples for stability testingor other analysis would be permissible.

The agency does not believe,however, that it is permissible underPDMA for licensed practitioners todistribute drug samples tomanufacturers or authorized distributorswho did not supply them. The agencybelieves that such distribution wouldserve no legitimate purpose and wouldunnecessarily increase the risk ofsample diversion. The agency is notpersuaded that manufacturers wouldexpend the time and resourcesnecessary to perform stability andquality testing on other manufacturers’samples. Moreover, even if such testingwere performed, it is unlikely that theresults of such testing would be sharedwith the manufacturer of the sample.Thus, the sample quality would not beimproved by allowing manufacturers toretrieve other manufacturers’ samples.Finally, the agency believes that a riskof diversion does exist with suchdistribution and that the risk is notoffset by any appreciable health benefit.

11. Drug Sample Status of FreeDistributions

In the preamble to the proposed rule(59 FR 11842 at 11855), the agencystated that because starter packs areintended to be sold, they are notsamples and thus the sampledistribution requirements do not apply

to them. The agency cautioned,however, that because starter packsprovide opportunities for diversionsimilar to those presented by drugsamples, manufacturers and distributorsshould establish and maintainaccounting, audit, and security systemsfor starter packs to guard againstdiversion.

81. One comment supported theagency’s position on starter packs,stating: ‘‘We applaud the FDA forclearing up misunderstandings aboutthe difference between samples andstarter packs.’’ Another comment agreedwith the agency’s position, but statedthat the cautionary language used by theagency in connection with starter packsimplicitly regulates them as samples.The comment recommended that theproposed regulations be revised toinclude a definition of starter packindicating that it is not a sample and toallow manufacturers to decide how tomonitor the distribution of starter packs.

As noted previously, the agency hasconcluded that starter packs do not meetthe statutory definition of a drug sampleand thus are not subject to PDMArequirements for sample distribution.This determination is consistent withthe definition of ‘‘drug sample’’ in theact and final regulations and need notbe codified. The agency also clarifiesthat manufacturers are not required tofollow the agency’s recommendationsfor monitoring the distribution of starterpacks. However, because of thepotential for diversion of theseproducts, the agency continues torecommend that their distribution bemonitored in a manner designed toprevent and detect diversion.

82. One comment sought clarificationof whether specific distributions ofprescription drugs to indigent patientsthrough retail pharmacies wouldconstitute a sample or nonsampletransaction. In the scenario presented bythe comment, the patient would presenta prescription and a ‘‘prescription drugcard’’ to the retail pharmacist, whowould fill the prescription from a stockbottle and be reimbursed for the cost ofthe drug and patient counseling servicesthrough a ‘‘pharmacy benefitscompany.’’ The comment stated that themanufacturer would have a contractwith the pharmacy benefits company tohandle all transactions for a drug underthe manufacturer’s indigent drugprogram.

The agency advises that theprescription drug dispensed in thescenario presented by the commentwould not be considered a sample forpurposes of PDMA because the drugproduct comes from the stock of the



retail pharmacy and is intended to besold.

83. One comment requested that theagency recognize that drugs distributedto a physician for use by the physician’sfamily are not samples. According to thecomment, such drugs should not beconsidered samples because they are notintended to promote the drug.

The agency believes that distributionsof free prescription drugs to a physicianfor use by his family do constitutesamples because they are intended topromote the marketing of a drug. Alicensed practitioner is clearlybenefitted by the provision of free drugsfor personal or family use. The agencybelieves that the benefit conferred on apractitioner in this manner by amanufacturer or authorized distributoris clearly intended to influence thephysician’s decisionmaking processabout what drugs to prescribe forpatients in the future and is thereforeintended to promote the sale of thedrug.

12. Bid and Commercial SamplesIn the preamble to the proposal (59 FR

11842 at 11856), the agency discussed‘‘bid’’ and ‘‘commercial’’ samples. Theagency stated that these includespecimens of bulk drug ingredients,precursor specimens, or finished dosageforms that are distributed to amanufacturer in limited quantities fortesting and evaluation purposes. Asnoted by the agency, specimens of bulkdrug ingredients may be used bymanufacturers to determine whether thebulk drug is compatible with themanufacturer’s production equipmentor suitable for use in formulating drugproducts. Finished dosage forms may beused by repackers to determine if theyare suitable for use with variouspackaging materials and equipment.Citing the definition of drug sample insection 503(c)(1) of the act and proposed§ 203.3(i), the agency stated that,because of the statutory language andthe threat of diversion, persons whodistribute bid or commercial samplesshould follow the requirements forsample distribution set forth in the actand the proposal.

84. One comment asked if the agencyintended for manufacturers providingmaterials for stability trials or forvalidation studies to follow sampledistribution requirements. The commentalso sought guidance on whichdistributions of prescription drugswould be covered by the terms ‘‘bid’’and ‘‘commercial’’ samples.

The agency clarifies that the terms‘‘bid’’ and ‘‘commercial’’ samples, asused by the agency in the proposal andin the final rule, refer to distributions of

bulk drug substances or finished dosageforms by a manufacturer or distributorto a manufacturer at no cost for testingand evaluation purposes. Suchdistributions would include freedistributions of bulk drug substances toconduct stability, validation, orcharacterization studies, or for otherpurposes related to testing andevaluation of the bulk drug substance.Such distributions would also includethe free distribution of a limitedquantity of a finished dosage form to arepackager for testing with therepackager’s packaging equipment. Asdiscussed in comment 85, the agencyhas determined that distributions of bidand commercial samples are not subjectto requirements for sample distributionunder PDMA or the final rule.

85. Several comments objected tosubjecting bid and commercial samplesto the same requirements as prescriptiondrug samples on the grounds that bidand commercial samples are notintended to promote the sale of a drugand thus are not drug samples. Twocomments stated that adhering to drugsample distribution requirements for bidand commercial samples would beburdensome to small companies anddrug manufacturers such as repackersthat do not have licensed practitionerson their staff. One of these commentsstated that the burden would not beoffset by any appreciable public healthbenefit. Several comments stated thatthe likelihood of diversion ofcommercial or bid samples is extremelysmall. Another comment stated that thepotential for diversion of bid andcommercial samples asserted by theagency is unsupported in either thecongressional or administrative record.Several comments recommendedapplying existing recordkeepingrequirements for prescription drugs tobid and commercial samples.

Although bid and commercialsamples arguably meet the literaldefinition of a drug sample undersection 503(c)(1) of the act, the agencybelieves that application of the statutoryrequirements for drug sampledistribution to such drugs would beinconsistent with congressional intent.In PDMA’s legislative history, Congressstated that ‘‘pharmaceuticalmanufacturers and distributors have along-established practice of providingsamples of their prescription drugs tophysicians and other practitionerslicensed to prescribe such drugs who, inturn, provide them to their patients. Theostensible purpose is to acquaint thepractitioner with the therapeutic valueof the medication and thus encouragethe written prescription of the drug.’’(See H. Rept. 100–76 at p. 12.) Because

bid and commercial samples are notprovided to practitioners or theirpatients, the agency believes thatCongress did not intend the drug sampleprovisions of PDMA to apply to them.Therefore, the agency is no longerrecommending that the sampledistribution requirements in PDMA andthe final rule be followed for bid andcommercial samples. However, becausethe potential for diversion exists, theagency recommends that manufacturersand distributors monitor their bid andcommercial sample distribution toprevent and detect diversion.

F. Application of PDMA to BulkPharmaceutical Chemicals

In the preamble to the proposal (59 FR11842 at 11843), the agency concludedthat bulk drug substances that aresubject to section 503(b) of the act (i.e.,prescription) are covered under PDMA.

86. One comment objected to theapplication of any portion of PDMA,including the sample distributionrequirements and wholesale distributionrequirements, to bulk pharmaceuticalchemicals (BPC’s). The comment arguedthat PDMA was intended by Congress toapply to finished dosage forms only andthat the proposed regulations cannot bepractically applied to BPC’s. Thecomment stated that the legislativehistory of PDMA indicates that Congresswas concerned with the effects ofdiversion on consumers and that, sinceBPC’s are not sold to consumers,Congress did not intend for the act toapply to them. The comment also statedthat BPC’s were not mentioned byCongress in either PDMA or itslegislative history and the absence oflegislative reference to BPC’s indicatesthat Congress did not even considerincluding BPC’s under PDMA. Thecomment argued that this reasoning isconsistent with the agency’s decision toexclude blood and blood componentsfrom wholesale distributionrequirements in PDMA.

The comment also said that theproposed regulations dealing withwholesale distribution and drugsamples cannot be practically applied toBPC’s. The comment stated, forexample, that the proposed sampleregulations would not allow a BPCmanufacturer to furnish a finisheddosage form manufacturer with BPCsamples because a manufacturer isprohibited from distributing drugsamples to anyone other than a licensedpractitioner or a hospital or health careentity pharmacy designated by alicensed practitioner. The comment saidthat BPC manufacturers could notcomply with wholesale licensingrequirements in part 205 because BPC’s



are distributed in an entirely differentway than other prescription drugs. Thecomment recommended that if BPC’sare to be included under PDMA, theproposed regulations should be revisedto ‘‘include regulations specific to andappropriate to BPC’s that address theproblems of diversion andcounterfeiting.’’

The preamble to the proposedregulations (59 FR 11843) discussed theapplicability of PDMA not to BPC’s, butto bulk drug substances (BDS’s). Asdiscussed in section II of this document,the definition of bulk drug substanceused in the final rule includes onlythose substances that become activeingredients when used in themanufacturing, processing, or packagingof a drug. It is the agency’sunderstanding that the term BPC, asused in the comment, includessubstances that do not become activeingredients when used in themanufacturing, processing, or packagingof a drug (i.e., substances that are notpharmacologically active, do not furnishdirect effect in the diagnosis, cure,mitigation, treatment, or prevention ofdisease, and do not affect the structureor any function of the body of humans)and thus are not bulk drug substances.

The statutory language of PDMAmakes it applicable to all drugs (asdefined under section 201(g)(1) of theact) that are subject to section 503(b)(1)of the act. Although components offinished drug products that are not bulkdrug substances may meet the statutorydefinition of a drug under section201(g)(1)(D) of the act, such materialsare not prescription drugs as describedunder section 503(b)(1) of the act.Accordingly, non-BDS components offinished drug products are not subject toPDMA requirements (e.g., drug sampleor wholesale drug distribution). Inaddition, as discussed under thepreceding comment, the drug sampledistribution requirements of PDMA donot apply to specimens of BDS’sprovided to finished dosage formmanufacturers for testing and evaluationpurposes.

The agency disagrees, however, thatPDMA was not intended by Congress toapply to prescription BDS’s or that thedistribution of prescription BDS’s is sodifferent than that of finished dosageforms that the wholesale distributionrequirements of PDMA cannot bepractically applied to BDS’s. As notedpreviously, the statutory language ofPDMA makes it applicable to all drugssubject to section 503(b)(1) of the act. ABDS that is intended to furnishpharmacological activity or other directeffect when it becomes a finisheddosage form that is a prescription drug

necessarily falls within the scope ofsection 503(b)(1) of the act. Thus, on itsface PDMA applies to prescriptionBDS’s. Although Congress did notspecifically refer to BDS’s in thelegislative history of PDMA, it also didnot specifically refer to finished dosageforms or otherwise indicate that thescope of PDMA is limited to finisheddosage forms. Moreover, the agencydisagrees with the assertion that becauseprescription BDS’s are not sold toconsumers Congress did not intend forPDMA to apply to them. PrescriptionBDS’s are used as components ofprescription drug products that are soldto consumers, and clearly any practicesthat adversely impact upon the qualityof prescription BDS’s could ultimatelyharm consumers. Thus, the agencybelieves that PDMA was intended byCongress to apply to prescription BDS’s.

The agency also believes that thewholesale distribution provisions ofPDMA should and must be applied toprescription BDS’s. Prescription BDS’sare distributed from the manufacturer ofthe BDS to the manufacturer orcompounder of the finished dosage formof the drug. That process of distributionmay be direct or, as is generally the casefor prescription BDS’s manufactured bya foreign manufacturer, through one ormore brokers/wholesalers. This systemof distribution meets the definition ofwholesale distribution under section503(e)(4)(B) of the act. Moreover,because this system of distribution mayinvolve several transfers of the bulkdrug substance through numerousparties and facilities over varyingperiods of time, similar concerns existwith BDS’s as with finished dosageforms regarding the personnel andfacilities through which BDS’s aredistributed and the manner in whichthey are stored and handled.Accordingly, manufacturers anddistributors of prescription BDS’s thatengage in wholesale distribution ofthese substances are required, undersection 503(e)(2)(A) of the act and part205, to be State licensed wholesaledistributors and to meet otherrequirements for wholesale distributionof prescription drugs under PDMA andthe agency’s regulations.

Thus, for prescription BDS’s importedinto the United States, including BDS’sintended for pharmacy compounding,the person responsible for theimportation of such BDS is engaged inthe wholesale distribution of aprescription drug and must be Statelicensed in the State into which theprescription BDS is imported and fromwhich distribution of such BDS occurs.In addition, any agent or wholesaler thatsubsequently distributes the BDS in

interstate commerce must be licensed bythe State from which the distributionoccurs. For domestically manufacturedprescription BDS’s, the BDSmanufacturer must be licensed by theState where its facilities are located.Agents that subsequently distribute theprescription BDS must be licensed bythe State from which the distribution ofthe BDS occurs.

In addition, any agent or distributorthat is not an authorized distributor ofrecord must provide a statement oforigin before distributing the BDS. Thus,except for those prescription BDSdistributors that have a writtenagreement with the BDS manufacturerto distribute the manufacturer’sproducts for a period of time or for anumber of shipments, prescription BDSdistributors must provide a statement oforigin showing all prior sales andpurchases of the prescription BDS beingdistributed and the names andaddresses of the parties to suchtransactions. Under § 203.50(c) of thefinal rule, a manufacturer that subjectsa prescription BDS to any additionalmanufacturing processes to produce adifferent drug is not required to provideto a purchaser a drug origin statement.

G. Application of PDMA toRadiopharmaceuticals

87. One comment requested thatdistributions of radiopharmaceuticals beexempt from the definition of wholesaledistribution in proposed § 203.3(y) andpart 205 such that State licensing anddrug origin statement requirementswould be inapplicable to these drugs.The comment made the following pointsabout radiopharmaceuticals: (1)Radiopharmaceuticals differ from otherprescription drugs in that theirradioactive component causes them tolose clinical effectiveness within a fewdays of manufacture; (2)radiopharmaceuticals are prepared insmall quantities, shipped overnight, andused the same day they are received; (3)neither manufacturers nor retailers canhave inventory of these drugs for longerthan a couple of days; (4) the uniqueproperties of radiopharmaceuticalsmake many of the storage, handling, andaccountability considerations of part205 inapplicable; (5) regulation by FDAwould be inappropriate and was notintended by Congress because it wouldduplicate existing regulations by severalFederal, State, and local agencies; (6)existing regulations cover howradiopharmaceuticals are manufactured,packaged, labeled, stored, shipped,used, and controlled; and (7)radiopharmacies are licensed underState retail pharmacy laws that impose



requirements relating to facilities,security, storage, and recordkeeping.

The agency declines to adopt theexclusions recommended by thecomment. The term radioactive drugs,as defined under 21 CFR 310.3(n),encompasses both radioactive andnonradioactive drug products.Radioactive drugs include drugproducts derived from by-productmaterials from nuclear reactors (i.e.,radionuclide generators), cyclotron-produced products (i.e., Ga-67 Citrate,Tl-201 Chloride, and In-111 Oxide), andpositron emission tomography products(e.g., Rubidium-82 andfludeoxyglucose). Nonradioactivereagent kits are also radioactive drugsand are compounded with radioactivesubstances by radiopharmacies orhospitals to make the final drugproduct.

As the comment points out, mostradioactive drugs have a limited shelf-life which requires that they bedistributed in a different manner thanmany prescription drugs. In addition,certain Federal and various Staterequirements for shipping, storage,handling, and recordkeeping apply toradioactive drugs. However, asdiscussed previously in conjunctionwith medical gases and the commentson bulk drugs, PDMA applies to allprescription drugs. Therefore, unlessthere is a clear indication in PDMA orits legislative history that Congress didnot intend for PDMA to apply to aspecific class of drugs, the agency doesnot believe that it is appropriate toexempt the class from PDMArequirements and restrictions. Exceptfor the factors mentioned above, there isno indication in PDMA or its legislativehistory that Congress intended thatradioactive drugs be treated differentlythan other types of prescription drugproducts. The agency does not believethat these factors, by themselves,indicate a clear congressional intent toexempt radioactive drugs from PDMA orto exclude radioactive drugs fromspecific PDMA requirements.

H. Wholesale Distribution

1. Section 203.50(a) and (a)(6)

Proposed § 203.50(a) and (a)(6) stated:* * * Before the completion of any

wholesale distribution by a wholesaledistributor of a prescription drug for whichthe seller is not an authorized distributor ofrecord to another wholesale distributor orretail pharmacy, the seller shall provide tothe purchaser a statement identifying eachprior sale, purchase, or trade of such drug.This identifying statement shall include:* * * The business name and address of allparties to each prior transaction involving thedrug, starting with the manufacturer * * *.

88. One comment objected to§ 203.50(a) and (a)(6) because it wouldrequire an unauthorized distributor toprovide information about all priorsales, purchases, or trades of the drug,starting with the manufacturer, even incases where the seller from whom thedistributor received the drug was anauthorized distributor of record and didnot provide any pedigree for the drug.The comment stated that ‘‘the proposedregulation would make it impossible, asa practical matter, for authorizeddistributors to sell into the[prescription] specialty market withoutproviding a pedigree,’’ which was notintended by Congress. The commentrecommended revising the proposedrule to require that the drug originstatement (i.e., the ‘‘pedigree’’) only goback to the last authorized distributor ofrecord.

The agency declines to revise theproposal in the manner suggested by thecomment. Section 503(e)(1)(A) of the actrequires that, prior to completion of awholesale distribution of a prescriptiondrug by a person who is not themanufacturer or an authorizeddistributor of the drug, a statement mustbe provided to the recipient identifyingeach prior sale, purchase, or trade of thedrug, including the date of thetransaction and the names andaddresses of all parties to thetransaction. There is no indication inPDMA that Congress intended that thestatement include only those sales,purchases, or trades since the drug waslast handled by an authorizeddistributor. Thus, an unauthorizeddistributor is required to provide a fulldrug origin statement in accordancewith PDMA and the final rule whetheror not it has purchased a prescriptiondrug from an authorized distributor ofrecord. Although the agency encouragesauthorized distributors to provide adrug origin statement to unauthorizeddistributors, they are not required to doso under PDMA or the final rule.

89. In the preamble to the proposal(59 FR 11842 at 11856 and 11857), theagency discussed at length its views onthe use of coding that representsrequired information on the drug originstatement. The agency stated that, sincethe enactment of PDMA, FDA’s positionhas been that the use of codedstatements on the drug origin statementthat make information unintelligible topurchasers without the intervention of athird party to decipher the code (e.g.,‘‘this shipment of drugs came fromunauthorized distributor RS47GS2273’’)does not provide purchasers with theinformation that Congress intended thatthey receive. Moreover, the PDA, whichamended section 503(e)(1) of the act to

require, among other things, that thedrug pedigree contain the ‘‘names andaddresses of all parties to thetransaction,’’ made clear that productsource codes may not be used on thedrug pedigree as a substitute forrequired information.

One comment supported the agency’sposition on the use of coding. Thecomment stated that the practice ofusing codes places a large burden ondistributors and recommended that theagency go a step further and revise theproposed regulations to prohibit the useof product source codes on drug originstatements.

The agency believes that its positionagainst the use of product source codesas a substitute for the name and addressof buyers or sellers in drug originstatements was adequately addressed inthe preamble to the proposal andrestated here. Accordingly, the agencydeclines to codify a prohibition on theuse of such codes in the final regulation.

2. Section 203.50(b)

The agency has added § 203.50(b) toclarify that the drug origin statement issubject to the revised record retentionrequirements of § 203.60(d) and must beretained by all wholesale distributorsinvolved in the distribution of the drugproduct, whether authorized orunauthorized, for 3 years. The agency isproviding this clarification in responseto numerous inquiries that it hasreceived since the proposed rule waspublished.

3. Section 203.50(c)

Proposed § 203.50(c) stated: ‘‘Eachmanufacturer shall maintain at thecorporate offices a current written list ofall authorized distributors of record.’’Proposed § 203.50(c)(3) stated: ‘‘Eachmanufacturer shall make its list ofauthorized distributors of recordavailable on request to the public forinspection or copying. A manufacturermay impose reasonable copying chargesfor such requests from members of thepublic.’’

90. One comment recommended thatthe list of distributors could bemaintained at any company site andcould be made available via electronicmedia or within 24 hours to other sites.

The rule does not require companyrecords to be kept at every companysite. As long as a company can producethe required information for review andcopying by FDA or other Federal, State,or local law enforcement agencies at thesite where they are requested within 2business days, the company maymaintain its records at a centrallocation.



91. Several comments objected to theproposed requirement thatmanufacturers must make their list ofauthorized distributors of recordavailable to the public. The commentsstated that this information isproprietary in nature and should be keptconfidential. One comment stated thatFDA has acknowledged that thisinformation was considered proprietaryin the past.

Other comments stated that providingsuch information is unduly burdensomeon manufacturers. One commentrecommended adding a ‘‘reasonablehours of inspection and reasonablecopying charges’’ provision to thesection. Another commentrecommended revising the section torequire only that industry respond toindividual inquiries about whether aspecific wholesaler is an authorizeddistributor of record.

The requirement that manufacturersmaintain a current list of authorizeddistributors of record appears at section503(e)(1)(B) of the act. In the legislativehistory, Congress stated that this listmust be made available for publicinspection. (See S. Rept. 100–303, p. 7.)Thus, the agency believes that denyingpublic access to lists of authorizeddistributors maintained bymanufacturers would contradictCongress’ clearly expressed intent.

In addition, the agency disagrees thata manufacturer’s list of authorizeddistributors constitutes proprietary orconfidential information. No provisionof PDMA or the act designates suchinformation as proprietary, and theagency is unaware of other laws orregulations that designate suchinformation as proprietary. Moreover,the agency has not previously statedthat this information is proprietary. Infact, in a 1988 letter to regulatedindustry (see Letter from Daniel L.Michels, Director, Office of Complianceto Regulated Industry, Docket No. 88N–258L, August 1, 1988), the agencyspecifically requested thatmanufacturers make lists of authorizeddistributors available at reasonablecharge to any requesting person.

Finally, the final rule permitsmanufacturers to impose reasonablecopying charges for requests. Suchcharges could include clerical time usedto create copies, copying costs, andmailing costs, if the requested copies aremailed. Therefore, except for costsassociated with creating, updating, andmaintaining the authorized distributorslists themselves (a cost that has beenevaluated separately by the agency inthe ‘‘Paperwork Reduction Act of 1995’’section under § 203.50(d)), the cost to

comply with revised § 203.50(d)(3)should be reimbursed.

4. Sales to Licensed Practitioners byRetail Pharmacies

In the preamble to the proposal (59 FR11842 at 11858), the agency stated:

FDA believes that permitting the sale ofsmall quantities of prescription drugs byretail pharmacies to licensed practitioners foroffice use without the requirement of a Statewholesale distributor’s license satisfies alegitimate need and is consistent with theintent of the statute. Accordingly, the agencyhas included language in proposed § 203.3(y)that would exclude the sale of minimalquantities of drugs by retail pharmacies tolicensed practitioners for office use from thedefinition of ‘‘wholesale distribution.’’

In this context, sales of prescription drugsby a retail pharmacy to licensed practitionersfor office use will be considered to beminimal if the total annual dollar volume ofprescription drugs sold to licensedpractitioners does not exceed 5 percent of thedollar volume of that retail pharmacy’sannual prescription drug sales.

92. One comment supported theagency’s decision to exclude minimalsales of prescription drugs by retailpharmacies from the definition ofwholesale distribution andrecommended that the 5 percentthreshold be codified in the finalregulation under § 203.3(y)(11).

The agency believes that its positionon what constitutes a minimal amountof prescription drugs for the purposes ofrevised § 203.3(cc)(10) was adequatelyexplained in the preamble to theproposal and need not be codified.

93. Another comment recommendedthat the 5 percent threshold beincreased to 20 percent and should bebased on annual, not monthly orweekly, sales of a retail pharmacy.According to the comment, the 5percent threshold would disadvantagesmall, independent pharmacies becausea large percentage of their sales isderived from supplying localpractitioners with prescription drugs.The comment also said that the 5percent threshold could be reachedeasily by a pharmacy that suppliesexpensive drugs, such as chemotherapymedications, to practitioners.

The distribution of prescription drugsto practitioners for office use constituteswholesale distribution under section503(e) of the act and proposed § 203.3(y)(i.e., distribution to other than aconsumer or patient). The agencyexcluded the sale of minimal quantitiesof drugs by retail pharmacies to licensedpractitioners for office use from thedefinition of wholesale distribution tomeet the needs of licensed practitionerswho may not purchase enoughprescription drugs to go through awholesale distributor and thus may not

otherwise be able to easily obtain drugsfor office use. Thus, the exemption wasnot created to confer a special benefit onretail pharmacies, but to meet thelegitimate needs of licensedpractitioners. The agency believes thatthe 20 percent threshold recommendedby the comment is inconsistent with thepurpose of the exemption and declinesto follow the recommendation. Theagency notes that a retail pharmacy isnot precluded from making more than 5percent of its annual sales to licensedpractitioners. It must, however, obtain aState wholesale distributor license to doso.

I. Request and Receipt Forms, Reports,and Records

1. Section 203.60(e)(1)

Proposed § 203.60(e)(1) stated: ‘‘Anyperson required to create or maintainreports, lists, or other records underPDMA, PDA, or this part shall retainthem for at least 3 years after the dateof their creation.’’

94. One comment objected to theproposed requirement in § 203.60(e)(1),stating that it conflicts with the 2-yearretention period requirement under§ 205.50(f)(2). The comment said thatchanging the record retention time inthe manner proposed would ‘‘require 44states that adopted FDA’s 2-yearstandard to enact legislative and/orregulatory changes in order to havelicensing programs that meet theminimum federal requirements.’’ Thecomment also said that changing to a 3-year record retention period wouldserve no apparent public healthpurpose, citing the agency’s rationalebehind the 2-year requirement in thepreamble to the final rule on Statewholesale licensing guidelines. Thecomment recommended that theproposed section should be revised torequire record retention for 2 years forall records kept by prescription drugwholesalers under PDMA.

Section 205.50(f)(1) requires thatinventories and records of transactionsregarding the receipt and distribution orother disposition of prescription drugsbe created and maintained. Section205.50(f)(2) requires that such recordsbe ‘‘made available’’ to authorizedFederal, State, or local law enforcementagencies for a period of 2 yearsfollowing the disposition of the drugs towhich the record relates. Because therequirement under proposed§ 203.60(e)(1) that records be retainedfor 3 years after the creation of therecord would apply to records requiredby § 205.50(f)(1), the requirements couldpotentially be conflicting. This result



was not anticipated by FDA at the timethe proposed rule was issued.

The agency agrees with the commentthat it is appropriate to establish onerecord retention period for all wholesaledistribution records required to becreated and maintained under PDMAand parts 203 and 205. The agency hasdetermined that because the shelf life ofthe majority of prescription drugproducts is longer than the 2-yearperiod specified in § 205.50(f)(2), thatperiod is insufficient to facilitate recallsby manufacturers and to enable theagency to respond to public healthemergencies related to prescription drugdistribution. Moreover, certain recordsrequired to be created and maintainedunder part 203, such as drug originstatements and written authorizationagreements between manufacturers anddistributors, are not linked to thedisposition of a particular drug productor drug products. Therefore, the agencyhas decided to adopt the record-retention period specified in proposed§ 203.60(e)(1) (renumbered § 203.60(d)),which is 3 years from the time ofcreation of a record, for all wholesaledistribution records required underPDMA, including those wholesaledistribution records required under§ 205.50(f)(1). Section 205.50(f)(2) hasbeen amended to incorporate the 3-yearrequirement.

2. Section 203.60(e)(2)Proposed § 203.60(e)(2) stated: ‘‘Any

person required to create or maintainreports, or records relating to thedistribution of drug samples shall retainthem for at least 3 years after the dateof their creation or 3 years after the dateof expiration of a drug sample for whichthe record is being kept, whichever islater.’’

95. Several comments contended thatthe additional burdens that would resultfrom record retention requirements over3 years outweigh the possible benefits.One comment stated that the proposedsection would require drug samplerecords to be kept a minimum of 6years. Two comments stated that itcould require record retention for 8years. One comment stated that ‘‘if apractitioner signs a receipt for twodifferent drug samples with differentexpiration dates, a manufacturer has togo through line by line to see if a recordhas to be kept.’’ A similar commentstated that the proposed section wouldrequire either implementation of acomplicated and expensive process forretaining records to make maximumeffective use of storage space or storageof all records for the same length oftime, taking into account the drug withthe longest shelf life plus 3 years.

Two comments stated that section503(d)(2)(C) and (d)(3)(C) of the actspecifically require that records for drugsamples be maintained for 3 years andthat FDA has no authority to requireretention for a longer period.

Several comments recommended thatthe proposed section be revised torequire a maximum record retentionperiod of 3 years. One commentrecommended revising the section torequire retention for the greater of 3years from the time of creation or 1 yearafter the date of expiration. Anothercomment recommended allowingmanufacturers and distributors todecide how to meet PDMArequirements, while still beingaccountable to provide a completedistribution history.

The agency agrees that the burdensassociated with the record-retentionrequirement in proposed § 203.60(e)(2)may outweigh its benefits. Although theuse of the expiration date as a referencepoint would ensure that the record iskept for the full shelf life of the drugsample, drug sample distributionrecords may refer to different types ofdrugs from varying lots that havedifferent expiration dates. Thus, asnoted by the comments, requiring arecord retention period based onexpiration dating would necessitatemaintaining different distributionrecords for different periods of time ormaintaining all records for a period thatis based on the drug or drugs with thelongest shelf life. The agency believesthat retention of records relating to drugsamples for 3 years from the time oftheir creation is sufficient to effectuaterecalls and to maintain accountabilityover sample distribution. Accordingly,the agency has eliminated proposed§ 203.60(e)(2) in the final rule. Underrevised § 203.60(d), all records underPDMA and part 203, including recordsrelating to the distribution of drugsamples, must be retained for 3 yearsfrom the date of their creation.

3. Section 203.60(e)(3)

On its own initiative, the agency isdeleting proposed § 203.60(e)(3) in thefinal rule. The proposed requirementwould have required manufacturers andauthorized distributors of record tomaintain records of drug sampledistribution identifying the drugsdistributed, the recipients of thedistributions, and all drug samplesdestroyed or returned to themanufacturer for 3 years. The agencybelieves that the final rule, as revised,contains adequate recordkeepingprovisions to ensure accountability overdrug sample distribution.

4. Section 203.60(f)

Proposed § 203.60(f) stated that anyperson required to create or maintainrequest and receipt forms, reports, lists,or other records under PDMA, PDA, orpart 203 shall make them available uponrequest, in a form that permits copyingor other means of duplication, to FDAor other Federal, State, or localregulatory and law enforcement officialsfor review and reproduction.

On its own initiative, the agency hasrevised proposed § 203.60(f)(renumbered § 203.60(e)) to specify thatthe records must be made availablewithin 2 business days of a request. Theagency believes that this constitutes areasonable period of time to obtainrecords kept off-site and is consistentwith other PDMA record productionrequirements.

J. Penalties and Rewards

In the preamble to the proposed rule(59 FR 11842 at 11860), the agencystated that ‘‘most violations of the actare punishable as misdemeanors.’’ Theagency later stated that ‘‘most PDMAviolations are felonies punishable by aprison term of not more than 10 years,a fine of not more than $250,000, orboth * * *.’’

96. One comment stated that the twostatements made by the agency areconflicting and should be reconciled.

The agency clarifies that the firststatement (‘‘most violations of the actare punishable as misdemeanors’’) refersto the entire act (see sections 303(a)(1)and (a)(2) of the act), not the PDMAprovisions. As stated in the preamble tothe proposed rule (59 FR 11842 at11860), most PDMA violations, exceptfor the distribution of a drug sample inviolation of section 503(d) of the act andthe failure to comply with the drugorigin statement requirement in section503(e)(1)(A) of the act, are felonies.

K. Amendments to 21 CFR Part 205

In the proposal, the agency proposedan amendment to the introductoryparagraph of § 205.50(c) that wouldrequire that prescription drugs be storedby wholesale distributors at appropriatetemperatures and under appropriateconditions in accordance with thelabeling requirements of the drugs orwith the requirements of USP XXII. Theagency also proposed an amendment to§ 205.50(c)(1) that would require that, ifno storage requirements are establishedfor a prescription drug, the drug must beheld at ‘‘controlled room temperature’’as defined in USP XXII. Current§ 205.50(c)(1) states that, if no storagerequirements are established for aprescription drug, the drug ‘‘may’’ be



held at controlled room temperature asdefined in an official compendium.

97. One comment objected to theproposed changes to § 205.50(c) on thegrounds that FDA incorrectlycharacterized the changes as ‘‘technicalchanges’’ in the preamble and has giveninadequate notice and opportunity tocomment on the changes under section553 of the Administrative ProceduresAct (APA). The comment stated thatincorporation by reference of USPstandards in § 205.50(c) and requiringadherence to USP standards forcontrolled room temperature in§ 205.50(c)(1) would significantlyincrease the burdens on industry incomplying with § 205.50. According tothe comment, such ‘‘substantive’’changes cannot be made unless FDAfully informs interested parties aboutthe elements of the new standard,including any new complianceobligations, and provides anopportunity for comment on the impactof the changes. The commentrecommended that ‘‘FDA initiaterulemaking proceedings that willadequately apprise interested parties ofthe issues involved’’ and forbear fromenforcing the proposed changes untilthe completion of the rulemaking.

The agency agrees that the proposedamendments to § 205.50(c) amount tomore than ‘‘technical changes’’ and thatthey should be the subject of a separateproposal with a more detailedexplanation of the associated issues andimpacts. Accordingly, the agency hasdecided to withdraw its proposal ofthese amendments. Should the agencydecide to repropose the amendments inthe future, it will do so in a manner thatprovides sufficient notice andopportunity for comment.

L. Analysis of Impacts in the ProposedRule

In the section entitled ‘‘Analysis ofImpacts’’ in the preamble to theproposal (59 FR 11842 at 11860 and11861), the agency provided itsassessment of the impacts of theproposed rule under Executive Order12866 and the Regulatory Flexibility Act(Public Law 96–354). The agency statedthat the proposed rule is consistent withthe principles set out in the ExecutiveOrder and is not a significant regulatoryaction as defined by the ExecutiveOrder. The agency explained that mostof the requirements in the proposed rulehave already been implemented by theregulated industry in response toPDMA’s enactment, FDA’s guidance,and industry trade associations’recommendations. The agencydetermined that the regulatory costs ofthe proposal are due to increased

paperwork requirements. The costs werecalculated by multiplying the estimatedtime necessary to complete thepaperwork for each section of theproposal by a standard hourly wage rate.In addition, based on its finding thatmany of the requirements in theproposed rule have been implementedby regulated industry, including smallentities, the agency certified that theproposed rule would not have asignificant economic impact on asubstantial number of small entities.

98. One comment stated that ‘‘FDA’sassessment of all costs and benefits ofavailable regulatory alternatives andselected regulatory approaches does notprove that the proposed rule maximizesnet benefits.’’ The comment stated thatthe proposed rule will have a‘‘significant negative effect on theindustry, health care costs, theenvironment, and State licensingagencies.’’ This impact, the commentstated, is not outweighed by benefits incontrolling, preventing, or detectingdiversion, or by adding significantly tothe safety of the consumer. Anothercomment stated that the proposed rulewould add significant costs, includingnew systems costs, withoutcorresponding benefits.

The agency believes that the final ruleis consistent with the principles setforth under Executive Order 12866. Thebenefits of the final rule, including thepublic health and safety benefits, havebeen discussed extensively in theproposal and in this notice. Theestimated costs to industry of the finalregulation, which are due primarily toadditional paperwork costs, are set forthin section IV.B of this document andhave been substantially revised from theestimates provided in the proposal. Theagency has attempted to accuratelyrepresent the benefits and costs of thefinal regulation, has carefully analyzedthem, and believes that the regulatoryapproaches chosen for the final rulemaximize net benefits.

99. One comment stated that theagency’s financial impact estimates are‘‘much too low.’’ According to thecomment, FDA has not considered costsassociated with the proposedrequirements, including travel andpersonnel expenses in conjunction withinventorying sales representatives andconducting investigations, increasedpaperwork in conjunction withcomarketing agreements, andadministrative and other costs inconjunction with longer recordmaintenance periods and tracking of bidand commercial samples.

As discussed in section IV.C of thisdocument, the agency has significantlyincreased its estimates of the reporting

and recordkeeping burdens associatedwith the final rule under the PaperworkReduction Act of 1995. In addition, theagency has revised the analysis ofimpacts section in the final rule toinclude estimates of nonpaperworkcosts of the final rule, such as storagecosts associated with retaining records.

100. Two comments disagreed withFDA’s assertion that most of theproposed requirements have beenimplemented by the industry inresponse to PDMA’s enactment, FDA’sguidance, and industry tradeassociations’ recommendations. One ofthe comments stated that the proposedrule contains items which are a‘‘significant departure’’ from currentlyunderstood requirements. The commentcited the following specific proposedrequirements and recommendations:The requirement under proposed§ 203.60(e)(2) for retention of drugsample records for 3 years past theexpiration date of the drug sample; therequirement under proposed § 203.37(b)for reporting possible falsifications ofdrug sample records; the requirementunder proposed § 203.38(c) for labelingof sample units; the requirements underproposed §§ 203.30 and 203.31 for drugsample receipts; and the agency’srecommendation in the proposal thatbid or commercial samples be trackedusing PDMA sample controls.

As discussed previously, many of theproposed requirements andrecommendations cited by the commenthave been deleted or substantiallymodified in the final rule in response toother comments or on the agency’sinitiative. Nevertheless, FDAacknowledges that some of the proposedrequirements may not have beenimplemented by industry at the time theproposal was published and that toomuch reliance may have been placed bythe agency on prior industryimplementation in the ‘‘Analysis ofImpacts’’ section of the proposal. Theagency has significantly revised itsanalysis of impacts for the final rule.

M. Estimated Annual Reporting andRecordkeeping Burden

101. Several comments stated that theestimated burdens set forth under the‘‘Paperwork Reduction Act of 1980’’section of the proposed rule (59 FR11842 at 11861) were too low. Onecomment stated that FDA grosslyunderestimated the annual reportingand recordkeeping burden and that bothindustry and FDA will be burdenedmore than anticipated byimplementation of many of theregulations. Another comment statedthat ‘‘the agency’s predicted timeestimates to comply with the rule are so



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

unrealistic as to be arbitrary andcapricious.’’

One comment cited specific examplesof estimates that it considered to be toolow. The comment stated that theagency’s estimate of 30 minutes tocomply with the recordkeepingrequirements under proposed§ 203.31(d) ‘‘grossly understates thetime and expense to comply.’’ Thecomment stated that the estimate of 30seconds to comply with §§ 203.30(c)and 203.31(c) takes into account onlythe time necessary to sign a samplereceipt, but not the time necessary for arepresentative to fill out the receipt withthe required information or the time thata representative will have to wait for apractitioner or his or her designee tosign the receipt. The comment statedthat the agency’s estimate of 30 and 60minutes to meet the recordkeepingrequirements under proposed§ 203.37(a) and (b), respectively, mayaccurately reflect the time necessary towrite up the report, but not to initiateand complete a thorough investigation.According to the comment, the estimateof 24 hours to prepare policies andprocedures under proposed § 203.34underestimates the time it will take fora company to research its activities,prepare and revise draft guidancedocuments, type the material, andobtain management approval. Thecomment stated that the agencyneglected to provide an estimate for thetime it will take to comply withproposed § 203.60. Finally, thecomment stated that FDA has ignoredthe burden the proposal will place onthe agency.

Based upon the comments, the agencyhas significantly modified and increasedits estimate of the reporting andrecordkeeping burdens associated withthe final rule under the section of thisnotice entitled ‘‘Paperwork ReductionAct of 1995.’’ Regarding the absence ofa burden estimate for proposed § 203.60,the agency advises that it has includedan estimate of the costs associated withthe record retention requirement inrevised § 203.60 in section IV.B of thisdocument. Finally, the agency expectsits administrative costs associated withoversight of the final rule to be minimal.As discussed below, the public has 60days from the publication of the finalrule to comment on the accuracy ofFDA’s revised burden estimates, and theagency encourages interested parties todo so.

IV. Analysis of ImpactsFDA 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 agenciesto assess all costs and benefits ofavailable regulatory alternatives and,when regulation is necessary, to selectregulatory approaches that maximizenet benefits (including potentialeconomic, environmental, public healthand safety, and other advantages;distributive impacts; and equity). TheRegulatory Flexibility Act requires ananalysis of regulatory options thatwould minimize any significanteconomic impact of a rule on smallentities unless an agency certifies that arule will not have a significanteconomic impact on a substantialnumber of small entities. The UnfundedMandates Reform Act requires thatagencies prepare an assessment ofanticipated costs and benefits beforeproposing any rule that may result inthe expenditure by State, local, andtribal governments, in the aggregate, orby the private sector, of $100 million(adjusted annually for inflation) in any1 year. The agency believes that thisfinal rule is consistent with theregulatory philosophy and principlesidentified in the Executive Order,Regulatory Flexibility Act, andUnfunded Mandates Reform Act.

A. Regulatory BenefitsThrough this regulation, the agency is

establishing procedures andrequirements implementing PDMA. Asdiscussed extensively above and in thepreamble of the proposed rule, therequirements in the final rule will,consistent with Congress’ intent inenacting PDMA, help to prevent the saleof subpotent, adulterated, counterfeit, ormisbranded prescription drugs and drugsamples to the American public. Forexample, the final rule establishesprocedural and recordkeepingrequirements for drug sampledistribution that will help to prevent thediversion and sale of drug samples. Thefinal rule also establishes wholesaledistribution requirements that willpermit the distribution chain ofprescription drugs to be traced, and willmake unauthorized wholesaledistributors more accountable. In sum,the final rule establishes controls overthe distribution of prescription drugsand drug samples that will help toensure that drugs are safe and effectivenot only when they leavemanufacturers, but when they reachconsumers.

B. Regulatory CostsFDA estimates that the incremental

costs that will result from the issuanceof this rule will amount to about $43million annually. Moreover, industry

will continue to incur an estimated $39million in annual costs for thoseactivities initiated shortly after PDMAwas enacted into law by Congress 10years ago. Thus, the total cost of PDMAand this implementing rule isapproximately $82 million. Almost allof the costs are associated with sampledistribution, and most are related topaperwork requirements.

1. Cost of Sample DistributionRequirements

a. Paperwork costs. The paperworksection of this preamble shows thehourly reporting and recordkeepingburden estimates for all of the sampledistribution requirements, including thefollowing: Request and receipt forms,license verification, inventory ofrepresentatives, notification of FDA andinvestigation of losses and falsifiedinformation, representative lists andsample storage sites, representativeconviction reports, written policies,assignment of individuals responsiblefor sample information, donationrecords, and inventory records andreconciliation reports. These costs willbe shared by those manufacturers,distributors, and charities subject to theabove requirements. These individualsshould already possess the necessaryprofessional skills to comply with thesepaperwork requirements. To determinethe paperwork costs for the sampledistribution requirements, FDAassumed that sales representativeswould complete the majority of therequest and receipt forms. In the case ofsample distribution by mail or commoncarrier, the agency assumed that anadministrator in the practitioner’s officewould complete the request and receiptforms. Also, the agency believes that anindividual in the office would beauthorized to sign the receipt forms forthe practitioner. Using 1995 hourlyearnings of approximately $244

(including 40 percent for benefits) forsales representatives and executive,administrative, and managerialpositions, the estimated total annualpaperwork costs for the sampledistribution requirements are $79million. Approximately $36 million ofthese costs have been incurred annuallysince PDMA’s enactment. Theremaining $43 million are samplepaperwork costs that will go into effectas a result of this regulation. Theseadditional costs include: $22.6 millionfor receipt recordkeeping, $2.6 millionfor license verification, $2.1 million forestablishing written policies and



5 ‘‘Drugs Industry Series,’’ 1992 Census ofManufacturers, U.S. Department of Commerce,Economics and Statistics Administration, Bureau ofthe Census, Table 4, pp. 28C to 12.

6 ‘‘United States,’’ 1992 Census of WholesaleTrade, U.S. Department of Commerce, Economicsand Statistics Administration, Bureau of theCensus, Table 1, pp. US to 11.

7 Data from IMS, 1996, as presented to FDA onMay 27, 1997. Data included an estimated 18.1million office calls, 8.1 million service calls, and6.3 million hospital calls made in 1996.

8 ‘‘Establishment and Firm Size,’’ 1992 Census ofService Industries, U.S. Department of Commerce,Economics and Statistics Administration, Bureau ofthe Census, Tables 1a and 1b, pp. 1 to 38 and pp.1 to 51. 9 ‘‘Drugs Industry Series,’’ Table 4, pp. 28C to 12.

10 Employment and Earnings, pp. 205 and 206.11 Dodge, F. W., Dodge Construction Potentials,

McGraw-Hill, Inc., 1996.

procedures for sample distribution, and$15.6 million for the lot or controlnumber requirements.

b. Other request and receipt formcosts. Sample request and receipt formsare required under PDMA for samplesdelivered by mail or common carrier.Under the final rule, FDA is alsorequiring receipt forms to be used whensamples are delivered byrepresentatives. To minimize printingand storage costs, FDA believescompanies will primarily use onecombination request and receipt formfor samples delivered by representativesand separate request and receipt formsfor mail delivery. Therefore, a total ofthree forms will be used, one of whichwill be new with this rule. The agencyestimates that the development andapproval of each form may takeapproximately 2 hours of anadministrator’s time. Taking intoconsideration the 2,208 manufacturersand distributors who distribute samples(691 manufacturers of pharmaceuticalpreparations5 plus 25 percent of the6,069 establishments of wholesaledistributors of drugs, drug properties,and druggists’ sundries6), the total one-time cost of developing these forms isapproximately $318,000 (2 hours x 3forms x 2,208 x $24). Of this amount,the one-time cost of developing theadditional form attributable to thisregulation is approximately $106,000 (2hours x 1 form x 2,208 x $24).

Manufacturers and distributors alsoincur annual printing costs associatedwith the distribution of these forms.After evaluating several printingestimates, the agency selected $0.025per page as a reasonable printing cost.Based on the paperwork estimates ofapproximately 32.5 million request andreceipt forms for delivery byrepresentatives7 and 750,000 receiptforms for mail-delivery (20 percent of309,807 offices and clinics of doctors ofmedicine and dentists8 x 12 per year),the agency estimates that manufacturersand distributors incur printing costs ofapproximately $831,00 annually ((32.5million + 750,000) x 0.025). FDA does

not include any printing costs for mail-requests, assuming that a paperexchange already occurred in themarketplace for this purpose. Inaddition, the agency believes that, inmost cases, manufacturers anddistributors will combine the receiptand request forms when samples aredelivered by a representative. Therefore,none of the above printing costs are newto this regulation.

c. Other license verification costs. Thefinal rule will require manufacturersand authorized distributors of record toverify with the State that thepractitioner to whom samples aredistributed is licensed or authorized bylaw to prescribe the drug product. Toevaluate the cost of compliance withthis requirement, the agency spoke witha representative of the Board ofPhysician Quality Assurance inMaryland. FDA found that it costsapproximately $500 to purchase a list ofall active practitioners with a license inthe State of Maryland. Due to the highcumulative cost for each manufacturerto purchase a list from every State (orfrom as many States as their distributionreaches), provide it to their distributors,and update it on a regular basis, it islikely that market forces will establish amore efficient process. For example, athird party could easily purchase theinformation and sell it to manufacturers.Considering the costs for third parties topurchase, manipulate, and disseminatethis information, the agency believesthat $500 to $1,000 would be areasonable price range for charges bythird parties to manufacturers fornationwide data. For the purpose of thisanalysis, FDA assumes that each of the691 manufacturers9 would pay anaverage of $750 each year, yielding totalannual costs of approximately $518,000to meet the license verificationrequirement. The agency does notcalculate any costs for manufacturers todisseminate this information, butinstead assumes that the licensenumbers would be added to the list ofphysicians that is currently provided tosales representatives on a yearly basis.

d. Other sample distributionrequirements. The other requirements ofthe rule entailed negligible costs, werealready part of industry practice, orwere attributable to the overall cost ofdoing business. For example, FDAassumes all charities that receivesamples have a licensed practitioner onstaff and that the cost of examining drugsample packaging is negligible. Thefinal rule also permits the inventory ofsamples held by sales representatives tobe conducted by the representatives

themselves. Therefore, no travelexpenses will be incurred for thispurpose. The agency also assumes thatmost manufacturers and distributorsand their representatives are currentlyfollowing proper storage and handlingrequirements to prevent the distributionof adulterated samples. In addition, theagency believes that it is already part ofcompany policy for manufacturers anddistributors to investigate significantlosses and known thefts of samples andcommon practice to label sample unitsso they may be tracked in recallsituations.

2. Nonsample-Related CostsTo determine the costs associated

with the nonsample-relatedrequirements, the agency multiplied the$24 hourly rate10 for salesrepresentatives and executive,administrative, and managerialpositions by the burden hours estimatedunder the paperwork section of thispreamble. These annual paperworkcosts are grouped into the followingcategories: Reimportation, salesrestrictions, and wholesale distribution.To calculate reimportation costs, theagency used the salary data forexecutive and managerial positions. Asfew requests for emergencyreimportation are expected, the annualpaperwork costs for all reimporters tofill out the emergency reimportationapplication total only $144. The annualcost of the credit memo and storagedocumentation required under ‘‘SalesRestrictions’’ is shared by hospitals,healthcare entities, and charities, and isestimated at $1.3 million. Wholesaledistribution requirements, including thedrug origin statement and distributorlist, are estimated to imposerecordkeeping costs of $258,000 peryear on manufacturers and distributors.All of the previous costs were initiatedby the enactment of PDMA and will notbe significantly affected by the issuanceof this rule.

3. Storage Costs for Sample andNonsample-Related Requirements

The final rule requires thatmanufacturers and/or distributors retainrecords for at least 3 years, including thefollowing documents: Drug returnmemos, request and receipt forms, drugsample inventory records andreconciliation reports, representativelists, and drug origin statements. In1995, the average expected annual rentfor space in commercial buildingsequaled $9.43 per square foot.11 For



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 ofthe Census, Table 7, pp. 1 to 186.

14 ‘‘Establishment and Firm Size,’’ 1992 Census ofService Industries, Table a and 4b, pp. 1 to 174 andpp. 1 to 184.

15 ‘‘Establishment and Firm Size,’’ 1992 Census ofService Industries, Table 4a and 4b, pp. 1 to 171 andpp. 1 to 183.

16 The Statistical Abstract of the United States,U.S. Department of Commerce, Bureau of theCensus, 1996, No. 187, p. 127.

17 ‘‘Establishment and Firm Size,’’ 1992 Census ofService Industries, Table 1b, pp. 1 to 51.

18 ‘‘Concentration Ratios in Manufacturing,’’ 1992Census of Manufacturers, U.S. Department ofCommerce, Economics and StatisticsAdministration, Bureau of the Census, Table 3.

19 ‘‘Establishment and Firm Size,’’ 1992 Census ofWholesale Trade, Tables 7 and 8, pp. 1 to 186 andpp. 1 to 218.

each of the first 3 years, the agencyestimates that an additional 5 squarefeet of storage space per affectedmanufacturer and distributor will beneeded to accommodate the recordretention requirements. After the thirdyear, each subsequent year’s records canreplace the most previous year’s,indicating that no more than 15 squarefeet of storage space will be necessary.FDA estimates that up to approximately2,500 manufacturers and distributorswill be affected; therefore, averageannual storage costs will amount toapproximately $118,000 in year 1,$236,000 in year 2, and $354,000 ineach year thereafter. Though retentionof drug return memos is also required ofhospitals and charities, the agencybelieves these costs are negligible. Someof these storage requirements wereinitiated by PDMA, but other storagerequirements have been added by thisregulation. The agency did not separatethese storage costs for the purpose ofthis analysis.

C. Small Business AnalysisThe agency has analyzed this rule in

accordance with the RegulatoryFlexibility Act to determine its effect onsmall entities.

1. Need for and Objectives of the RuleAs stated previously, PDMA was

enacted by Congress to prevent the saleof subpotent, adulterated, counterfeit, ormisbranded drugs. Through thisregulation, the agency is establishing theprocedures and requirements toimplement PDMA. The final rulefacilitates the goals of PDMA byestablishing procedural andrecordkeeping requirements for drugsample distribution that will help toprevent the diversion and sale of drugsamples. In addition, the final ruleestablishes wholesale distributionrequirements that will permit thedistribution chain of prescription drugsto be traced, and will makeunauthorized wholesale distributorsmore accountable.

2. Description and Estimate of theNumber of Small Entities

According to the Small BusinessAdministration (SBA), distributors ofdrugs, drug proprietaries, and druggists’sundries with 100 or fewer employeesor manufacturers of pharmaceuticalpreparations with 750 or feweremployees are considered small entities.The U.S. Census does not disclose dataon the number of drug manufacturingfirms by employment size, but between92 percent and 96 percent of drugmanufacturing establishments, orapproximately 650 establishments, are

small under this definition.12 Althoughthe number of firms that are smallwould be less than the number ofestablishments mentioned above, FDAstill concludes that the majority ofpharmaceutical preparationmanufacturing firms are small entities.In addition, the agency found that 94percent of the distribution firms, orapproximately 4,000 firms, are small.13

However, as stated previously, theagency believes that the majority ofthese do not distribute samples, andthus will not be affected by the rule.According to SBA’s definition, generalmedical and surgical hospitals, and theoffices and clinics of dentists anddoctors of medicine that are either not-for-profit or have $5 million or less inrevenue are also considered small.Using this definition, FDA determinedthat approximately 96 percent of thehospitals (or approximately 4,000hospitals)14 and 99 percent of the officesand clinics (or approximately 268,000offices and clinics)15 are small. Inaddition, due to their nonprofit status,the agency assumes that the 3,112charities expected to be affected by thisrule (based on a portion of not-for-profithospitals,16 doctors’ offices, andclinics17) would be considered small bySBA. As noted in the paperwork sectionof this regulation, FDA believes thatapproximately 12 importers will beaffected by this rule, and assumes thatthe majority of them are small.

The agency notes that the greatmajority of the costs of this rule will beincurred by the manufacturers anddistributors that distribute drugsamples. The costs will not be evenlydistributed, but directly related to thesize of each company’s sales force.According to Census data, less than 10percent of the manufacturing companiesin the pharmaceutical preparationsindustry have 90 percent of theindustry’s sales.18 Likewise,approximately 1 percent of the firmsdistributing drugs, drug proprietaries,

and druggists’ sundries have 74 percentof the industry’s sales.19 Consequently,the largest firms will incur the majorityof the drug sample-related costs of thisregulation, and the smallest firms willincur relatively few of these costs.While some small reimporters will beaffected by the reimportation restriction,this impact will be moderated becausemost also import non-U.S. drugs orother products. The cost impact oncharities will be minimal.

3. Estimate of the RecordkeepingBurden

The majority of the costs of thisregulation are derived from thepaperwork requirements. Themanufacturers, distributors, andcharities involved in the sampledistribution process are required tocomply with the recordkeepingrequirements specified earlier in thisanalysis. These individuals shouldalready possess the necessary skills toestablish written policies andprocedures, complete forms andapplications, and prepare the requireddocumentation. The paperworkspecified by this rule does not requireany special professional training orskills to complete and would be of atype already being handled byregulatory affairs professionals who areemployed by drug manufacturers anddistributors.

4. Analysis of Alternatives

FDA could have implemented the ruleas proposed, but instead, the agencytook several steps to minimize theeconomic impact on small entities.Specifically, the agency reduced oreliminated several of the requirementsunder the proposed rule. Examples ofthis can be found under therequirements for sample inventory, lotor control numbers, sample unitidentification, and sample recordretention. Under the proposal, theinventory of drug samples held by salesrepresentatives would be conducted byan executive other than therepresentative or the immediatesupervisor. Comments emphasized thecostliness of this requirement,indicating it was time consuming andentailed travel expenses to regionalsales offices. In response to thesecomments, the final rule allows salesrepresentatives and their supervisorypersonnel to conduct the inventory andreconciliation functions. Also, inresponse to comments on the proposal,FDA reduced the administrative burden



associated with the donation ofprescription drug samples to charity.Furthermore, FDA found itunnecessarily burdensome to requirethat lot or control numbers appear ondrug sample records, receipts, andreconciliation reports, as proposed.Therefore, the final rule adds flexibilityby allowing the recording of lot orcontrol numbers on other types ofrecords. Also, in response to comments,the agency is allowing the use ofadhesive stickers on retail units todesignate a sample unit as a sample.The final rule reduces the drug samplerecord retention period, which wasproposed as 3 years from the sampleexpiration date. The agency decidedthat retention of drug sample records for3 years from the date of their creationis sufficient for recall facilitation andproper accountability over sampledistribution.

The agency considered minimizingthe impact of this rule by not requiringmanufacturers and authorizeddistributors to verify with the State thatthe practitioner to whom samples aredistributed is licensed or authorized bylaw to prescribe the drug product.However, under the final rule, thislicense verification requirement wasadded in response to comments. Thecost of this requirement is estimated atapproximately $3.2 million per year.The agency determined that thisrequirement is the only reliable way ofproving that the practitioner requestingsamples is actually licensed by a Stateto prescribe drugs. The agency does notbelieve that allowing a manufacturer todeem acceptable a license orauthorization number on a request formwithout verifying its authenticity wouldoffer any such assurance.

The agency considered eliminatingthe receipt requirement forrepresentative-delivered samples. Thiswould reduce the cost of the finalregulation by approximately $22.6million per year. However, althoughCongress did not expressly require areceipt for representative-deliveredsamples, FDA concluded that thisrequirement is necessary to help ensureeffective enforcement, increasedaccountability and oversight of sampledistribution, and to provide adequatesafeguards against drug samplediversion.

5. Response to CommentsSeveral of the comments indicated

that the initial economic analysisunderstated the impact of the proposedrule. FDA reevaluated and significantlyincreased the paperwork estimates tomore accurately reflect industry’simplementation of this final regulation.

For example, the agency increased theestimated time for a manufacturer toconduct an annual inventory andcomplete a reconciliation report from 30minutes to 40 hours per manufacturer.The agency also increased the amount oftime estimated to generate a samplereceipt from 1 minute to 3 and 5minutes for distribution by mail andrepresentative respectively, and theestimated time to investigate possiblesignificant loss or theft of samples from1 hour to 24 hours. In addition, theagency identified and estimated theburden associated with requirementsother than recordkeeping that were notquantified under the proposed rule. Forexample, FDA allotted 2 hours for thedevelopment of each of the samplerequest and receipt forms. The annualprinting costs associated with theseforms have also been assessed. Storagecosts have been added as necessitatedby the paperwork requirements of thisregulation.

D. ConclusionFDA calculated both the incremental

costs of this final rule and the costsinitially imposed upon the enactment ofPDMA, and determined that there areone-time costs of $318,000 fordeveloping forms, and total annual costsof approximately $82 million.Approximately $39 million of theseannual costs have been incurred byindustry since the enactment of PDMAby Congress in 1988. An estimatedadditional $43 million per year willresult from the new requirements in thisregulation. This rule is not a significantregulatory action as defined by theExecutive Order, and is therefore notsubject to review under the ExecutiveOrder. This rule does not impose anymandates on State, local, or tribalgovernments, nor is it a significantregulatory action under the UnfundedMandates Reform Act. Finally, theagency has analyzed this rule inaccordance with the RegulatoryFlexibility Act and provided each of theelements required for a final regulatoryflexibility analysis.

V. Executive Order 13132: FederalismFDA has analyzed this final rule in

accordance with Executive Order 13132:Federalism. Executive Order 13132requires Federal agencies to carefullyexamine actions to determine if theycontain policies that have federalismimplications or that preempt State law.As defined in the Order, ‘‘policies thathave federalism implications’’ refers toregulations, legislative comments orproposed legislation, and other policystatements or actions that havesubstantial direct effects on the States,

on the relationship between the nationalgovernment and the States, or on thedistribution of power andresponsibilities among the variouslevels of government.

FDA is publishing this final rule to setforth agency policies and requirementsand provide administrative procedures,information, and guidance for thosesections of PDMA that are not related toState licensing of wholesale prescriptiondrug distributors. Because enforcementof these sections of PDMA is a Federalresponsibility, there should be little, ifany, impact from this rule on the States,on the relationship between the nationalgovernment and the States, or on thedistribution of power andresponsibilities among the variouslevels of government. In addition, thisregulation does not preempt State law.

Accordingly, FDA has determinedthat this final rule does not containpolicies that have federalismimplications or that preempt State law.

VI. Paperwork Reduction Act of 1995This final rule contains information

collection provisions that are subject toreview by the Office of Management andBudget (OMB) under the PaperworkReduction Act of 1995 (44 U.S.C. 3501–3520). The title, description, andrespondent description of theinformation collection provisions areshown below with an estimate of theannual reporting and recordkeepingburden. Included in the estimate is thetime for reviewing instructions,searching existing data sources,gathering and maintaining the dataneeded, and completing and reviewingeach collection of information.

Title: Prescription Drug Marketing Actof 1987; Policies, Requirements, andAdministrative Procedures.

Description: The final rule providesfor the collection of information fromestablishments engaged in thereimportation and wholesaledistribution of prescription drugs; thesale, purchase, or trade of (or offer tosell, purchase, or trade) prescriptiondrugs by hospitals, health care entities,and charitable institutions; thedistribution of prescription drugsamples; and the wholesale distributionof prescription drugs.

Description of Respondents:Businesses, hospitals, health careentities, charitable institutions, andother for-profit and not-for-profitorganizations; small businesses ororganizations.

Although the March 1994 proposalprovided a 60-day comment periodunder the Paperwork Reduction Act of1980, and this final rule responds to thecomments received, FDA is providing



an additional opportunity for publiccomment under the PaperworkReduction Act of 1995, which becameeffective after the expiration of thecomment period and applies to thisfinal rule. Therefore, FDA now invitescomments on: (1) Whether the proposedcollection of information is necessaryfor the proper performance of FDA’sfunctions, including whether theinformation will have practical utility;(2) the accuracy of FDA’s estimate of theburden of the proposed collection ofinformation, including the validity ofthe methodology and assumptions used;(3) ways to enhance the quality, utility,

and clarity of the information to becollected; and (4) ways to minimize theburden of the collection of informationon respondents, including through theuse of automated collection techniques,when appropriate, and other forms ofinformation technology. Individuals andorganizations may submit comments onthe information collection provisions ofthis final rule by February 1, 2000.Comments should be directed to theDockets Management Branch (addressabove).

At the close of the 60-day commentperiod, FDA will review the commentsreceived, revise the informationcollection provisions as necessary, and

submit these provisions to OMB forreview. FDA will publish a notice in theFederal Register when the informationcollection provisions are submitted toOMB, and an opportunity for publiccomment to OMB will be provided atthat time. Prior to the effective date ofthis final rule, FDA will publish a noticein the Federal Register of OMB’sdecision to approve, modify, ordisapprove the information collectionprovisions. An agency may not conductor sponsor, and a person is not requiredto respond to, a collection ofinformation unless it displays acurrently valid OMB control number.

TABLE 1.—ESTIMATED ANNUAL REPORTING BURDEN1

21 CFR Section No. ofRespondents

AnnualFrequency per

Response

Total AnnualResponses

Hours perResponse Total Hours

203.11 12 1 12 .5 6203.30(a)(1) and (b) 61,961 12 743,532 .06 44,612203.30(a)(3), (a)(4), and (c) 61,961 12 743,532 .06 44,612203.31(a)(1) and (b) 232,355 135 31,367,925 .04 1,254,717203.31(a)(3), (a)(4), and (c) 232,355 135 31,367,925 .03 941,038203.37(a) 25 1 25 6.00 150203.37(b) 200 1 200 6.00 1,200203.37(c) 50 1 50 1.00 50203.37(d) 2,208 1 2,208 .08 177203.38(a) 2,208 1 2,208 3.00 6,624203.39(g) 3,221 1 3,221 2.00 6,442203.50(a) 125 100 12,500 .08 1,000Total 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 BURDEN1

21 CFR Section No. ofRecordkeepers

AnnualFrequency perRecordkeeping

Total Annual Records Hours perRecordkeeper Total Hours

203.23(a) and (b) 31,676 5 158,380 .25 39,595203.23(c) 31,676 5 158,380 .08 12,670203.30(a)(2) and 203.31(a)(2) 2,208 100 220,800 .50 110,400203.31(d)(1) and (d)(2) 2,208 1 2,208 40.00 88,320203.31(d)(4) 442 1 442 24.00 10,608203.31(e) 2,208 1 2,208 1.00 2,208203.34 2,208 1 2,208 40.00 88,320203.37(a) 25 1 25 18.00 450203.37(b) 200 1 200 18.00 3,600203.38(b) 2,208 14,543 32,111,457 .02 642,229203.39(d) 65 1 65 1.00 65203.39(e) 3,221 1 3,221 .50 1,610203.39(f) 3,221 1 3,221 8.00 25,768203.39(g) 3,221 1 3,221 8.00 25,768203.50(a) 125 100 12,500 .17 2,125203.50(b) 125 100 12,500 .50 6,250203.50(d) 691 1 691 2.00 1,382Total 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 fromrecordkeeping requirements because theinformation it requires to be placed ondrug sample labeling is provided by theagency.

VII. Environmental ImpactThe agency has determined under 21

CFR 25.30(h) that this action is of a classof actions that do not individually orcumulatively have a significant effect onthe human environment. Therefore,

neither an environmental assessmentnor an environmental impact statementis required.



List of Subjects

21 CFR Part 203

Drugs, Labeling, Manufacturing,Prescription drugs, Reporting andrecordkeeping requirements,Warehouses.

21 CFR Part 205

Intergovernmental relations,Prescription drugs, Reporting andrecordkeeping requirements, Securitymeasures, Warehouses.

Therefore, under the Federal Food,Drug, and Cosmetic Act and underauthority delegated to the Commissionerof Food and Drugs, 21 CFR chapter I isamended as follows:

1. Part 203 is added to read as follows:

PART 203—PRESCRIPTION DRUGMARKETING

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 orcommon carrier.

203.31 Sample distribution by means otherthan mail or common carrier (directdelivery by a representative or detailer).

203.32 Drug sample storage and handlingrequirements.

203.33 Drug sample forms.203.34 Policies and procedures;

administrative systems.203.35 Standing requests.203.36 Fulfillment houses, shipping and

mailing services, comarketingagreements, and third-partyrecordkeeping.

203.37 Investigation and notificationrequirements.

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

203.39 Donation of drug samples tocharitable institutions.

Subpart E—Wholesale Distribution

203.50 Requirements for wholesaledistribution of prescription drugs.

Subpart F—Request and ReceiptForms, 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

§ 203.1 Scope.This part sets forth procedures and

requirements pertaining to thereimportation and wholesaledistribution of prescription drugs,including both bulk drug substancesand finished dosage forms; the sale,purchase, or trade of (or the offer to sell,purchase, or trade) prescription drugs,including bulk drug substances, thatwere purchased by hospitals or healthcare entities, or donated to charitableorganizations; and the distribution ofprescription drug samples. Blood andblood components intended fortransfusion are excluded from therestrictions in and the requirements ofthe Prescription Drug Marketing Act of1987 and the Prescription DrugAmendments of 1992.

§ 203.2 Purpose.The purpose of this part is to

implement the Prescription DrugMarketing Act of 1987 and thePrescription Drug Amendments of 1992,except for those sections relating toState licensing of wholesale distributors(see part 205 of this chapter), to protectthe public health, and to protect thepublic against drug diversion byestablishing procedures, requirements,and minimum standards for thedistribution of prescription drugs andprescription drug samples.

§ 203.3 Definitions.(a) The act means the Federal Food,

Drug, and Cosmetic Act, as amended (21U.S.C. 301 et seq.).

(b) Authorized distributor of recordmeans a distributor with whom amanufacturer has established anongoing relationship to distribute suchmanufacturer’s products.

(c) Blood means whole bloodcollected from a single donor andprocessed either for transfusion orfurther manufacturing.

(d) Blood component means that partof a single-donor unit of blood separatedby physical or mechanical means.

(e) Bulk drug substance means anysubstance that is represented for use in

a drug and that, when used in themanufacturing, processing, or packagingof a drug, becomes an active ingredientor a finished dosage form of the drug,but the term does not includeintermediates used in the synthesis ofsuch substances.

(f) Charitable institution or charitableorganization means a nonprofit hospital,health care entity, organization,institution, foundation, association, orcorporation that has been granted anexemption under section 501(c)(3) of theInternal Revenue Code of 1954, asamended.

(g) Common control means the powerto direct or cause the direction of themanagement and policies of a person oran organization, whether by ownershipof stock, voting rights, by contract, orotherwise.

(h) Distribute means to sell, offer tosell, deliver, or offer to deliver a drug toa recipient, except that the term‘‘distribute’’ does not include:

(1) Delivering or offering to deliver adrug by a common carrier in the usualcourse of business as a common carrier;or

(2) Providing of a drug sample to apatient by:

(i) A practitioner licensed to prescribesuch drug;

(ii) A health care professional actingat the direction and under thesupervision of such a practitioner; or

(iii) The pharmacy of a hospital or ofanother health care entity that is actingat the direction of such a practitionerand that received such sample inaccordance with the act and regulations.

(i) Drug sample means a unit of aprescription drug that is not intended tobe sold and is intended to promote thesale of the drug.

(j) Drug coupon means a form thatmay be redeemed, at no cost or atreduced cost, for a drug that isprescribed in accordance with section503(b) of the act.

(k) Electronic record means anycombination of text, graphics, data,audio, pictorial, or other informationrepresentation in digital form that iscreated, modified, maintained, archived,retrieved, or distributed by a computersystem.

(l) Electronic signature means anycomputer data compilation of anysymbol or series of symbols executed,adopted, or authorized by an individualto be the legally binding equivalent ofthe individual’s handwritten signature.

(m) Emergency medical reasonsinclude, but are not limited to, transfersof a prescription drug between healthcare entities or from a health care entityto a retail pharmacy to alleviate atemporary shortage of a prescription



drug arising from delays in orinterruption of regular distributionschedules; sales to nearby emergencymedical services, i.e., ambulancecompanies and fire fightingorganizations in the same State or samemarketing or service area, or nearbylicensed practitioners, of drugs for usein the treatment of acutely ill or injuredpersons; provision of minimalemergency supplies of drugs to nearbynursing homes for use in emergencies orduring hours of the day when necessarydrugs cannot be obtained; and transfersof prescription drugs by a retailpharmacy to another retail pharmacy toalleviate a temporary shortage; but donot include regular and systematic salesto licensed practitioners of prescriptiondrugs that will be used for routine officeprocedures.

(n) FDA means the U.S. Food andDrug Administration.

(o) Group purchasing organizationmeans any entity established,maintained, and operated for thepurchase of prescription drugs fordistribution exclusively to its memberswith such membership consisting solelyof hospitals and health care entitiesbound by written contract with theentity.

(p) Handwritten signature means thescripted name or legal mark of anindividual handwritten by thatindividual and executed or adoptedwith the present intention toauthenticate a writing in a permanentform. The act of signing with a writingor marking instrument such as a pen orstylus is preserved. The scripted nameor legal mark, while conventionallyapplied to paper, may also be applied toother devices that capture the name ormark.

(q) Health care entity means anyperson that provides diagnostic,medical, surgical, or dental treatment, orchronic or rehabilitative care, but doesnot include any retail pharmacy or anywholesale distributor. A person cannotsimultaneously be a ‘‘health care entity’’and a retail pharmacy or wholesaledistributor.

(r) Licensed practitioner means anyperson licensed or authorized by Statelaw to prescribe drugs.

(s) Manufacturer means any personwho is a manufacturer as defined by§ 201.1 of this chapter.

(t) Nonprofit affiliate means any not-for-profit organization that is eitherassociated with or a subsidiary of acharitable organization as defined insection 501(c)(3) of the Internal RevenueCode of 1954.

(u) Ongoing relationship means anassociation that exists when amanufacturer and a distributor enter

into a written agreement under whichthe distributor is authorized todistribute the manufacturer’s productsfor a period of time or for a number ofshipments. If the distributor is notauthorized to distribute amanufacturer’s entire product line, theagreement must identify the specificdrug products that the distributor isauthorized to distribute.

(v) PDA means the Prescription DrugAmendments of 1992.

(w) PDMA means the PrescriptionDrug 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 componentsintended for transfusion or biologicalproducts that are also medical devices)required by Federal law (includingFederal regulation) to be dispensed onlyby a prescription, including finisheddosage forms and bulk drug substancessubject to section 503(b) of the act.

(z) Representative means an employeeor agent of a drug manufacturer ordistributor who promotes the sale ofprescription drugs to licensedpractitioners and who may solicit orreceive written requests for the deliveryof drug samples. A detailer is arepresentative.

(aa) Sample unit means a packet, card,blister pack, bottle, container, or othersingle package comprised of one ormore dosage units of a prescription drugsample, intended by the manufactureror distributor to be provided by alicensed practitioner to a patient in anunbroken or unopened condition.

(bb) Unauthorized distributor means adistributor who does not have anongoing relationship with amanufacturer to sell or distribute itsproducts.

(cc) Wholesale distribution meansdistribution of prescription drugs topersons other than a consumer orpatient, but does not include:

(1) Intracompany sales;(2) The purchase or other acquisition

by a hospital or other health care entitythat is a member of a group purchasingorganization of a drug for its own usefrom the group purchasing organizationor from other hospitals or health careentities that are members of suchorganizations;

(3) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug by a charitable organizationto a nonprofit affiliate of theorganization to the extent otherwisepermitted by law;

(4) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug among hospitals or other

health care entities that are undercommon control;

(5) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug for emergency medicalreasons;

(6) The sale, purchase, or trade of adrug, an offer to sell, purchase, or tradea drug, or the dispensing of a drugunder a prescription executed inaccordance with section 503(b) of theact;

(7) The distribution of drug samplesby manufacturers’ and authorizeddistributors’ representatives;

(8) The sale, purchase, or trade ofblood or blood components intended fortransfusion;

(9) Drug returns, when conducted bya hospital, health care entity, orcharitable institution in accordancewith § 203.23; or

(10) The sale of minimal quantities ofdrugs by retail pharmacies to licensedpractitioners for office use.

(dd) Wholesale distributor means anyperson engaged in wholesaledistribution of prescription drugs,including, but not limited to,manufacturers; repackers; own-labeldistributors; private-label distributors;jobbers; brokers; warehouses, includingmanufacturers’ and distributors’warehouses, chain drug warehouses,and wholesale drug warehouses;independent wholesale drug traders;and retail pharmacies that conductwholesale distributions.

Subpart B—Reimportation

§ 203.10 Restrictions on reimportation.

No prescription drug or drugcomposed wholly or partly of insulinthat was manufactured in a State andexported from the United States may bereimported by anyone other than itsmanufacturer, except that FDA maygrant permission to a person other thanthe manufacturer to reimport aprescription drug or insulin-containingdrug if it determines that suchreimportation is required for emergencymedical care.

§ 203.11 Applications for reimportation toprovide emergency medical care.

(a) Applications for reimportation foremergency medical care shall besubmitted to the director of the FDADistrict Office in the district wherereimportation is sought (addressesfound in § 5.115 of this chapter).

(b) Applications for reimportation toprovide emergency medical care shallbe reviewed and approved ordisapproved by each district office.



§ 203.12 An appeal from an adversedecision by the district office.

An appeal from an adverse decisionby the district office involving insulin-containing drugs or prescription humandrugs, other than biological products,may be made to the Office ofCompliance (HFD–300), Center for DrugEvaluation and Research, Food andDrug Administration, 7520 Standish Pl.,Rockville, MD 20855. An appeal froman adverse decision by the district officeinvolving prescription human biologicalproducts may be made to the Office ofCompliance and Biologics Quality(HFM–600), Center for BiologicsEvaluation and Research, Food andDrug Administration, 1401 RockvillePike, Rockville, MD 20852.

Subpart C—Sales Restrictions

§ 203.20 Sales restrictions.Except as provided in § 203.22 or

§ 203.23, no person may sell, purchase,or trade, or offer to sell, purchase, ortrade any prescription drug that was:

(a) Purchased by a public or privatehospital or other health care entity; or

(b) Donated or supplied at a reducedprice to a charitable organization.

§ 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 hospitalor other health care entity that is amember of a group purchasingorganization from the group purchasingorganization or from other hospitals orhealth care entities that are members ofthe organization.

(b) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug by a charitable organizationto a nonprofit affiliate of theorganization to the extent otherwisepermitted by law.

(c) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug among hospitals or otherhealth care entities that are undercommon control.

(d) The sale, purchase, or trade of adrug or an offer to sell, purchase, ortrade a drug for emergency medicalreasons.

(e) The sale, purchase, or trade of adrug, an offer to sell, purchase, or tradea drug, or the dispensing of a drugunder a valid prescription.

(f) The sale, purchase, or trade of adrug or the offer to sell, purchase, ortrade a drug by hospitals or health careentities owned or operated by Federal,State, or local governmental units toother hospitals or health care entitiesowned or operated by Federal, State, orlocal governmental units.

(g) The sale, purchase, or trade of, orthe offer to sell, purchase, or trade bloodor blood components intended fortransfusion.

§ 203.23 Returns.

The return of a prescription drugpurchased by a hospital or health careentity or acquired at a reduced price byor donated to a charitable institution isexempt from the prohibitions in§ 203.20, provided that:

(a) The hospital, health care entity, orcharitable institution documents thereturn by filling out a credit memospecifying:

(1) The name and address of thehospital, health care entity, or charitableinstitution;

(2) The name and address of themanufacturer or wholesale distributorfrom which it was acquired;

(3) The product name and lot orcontrol number;

(4) The quantity returned; and(5) The date of the return.(b) The hospital, health care entity, or

charitable institution forwards a copy ofeach credit memo to the manufacturerand retains a copy of each credit memofor its records;

(c) Any drugs returned to amanufacturer or wholesale distributorare kept under proper conditions forstorage, handling, and shipping, andwritten documentation showing thatproper conditions were maintained isprovided to the manufacturer orwholesale distributor to which the drugsare returned.

Subpart D—Samples

§ 203.30 Sample distribution by mail orcommon carrier.

(a) Requirements for drug sampledistribution by mail or common carrier.A manufacturer or authorizeddistributor of record may distribute adrug sample to a practitioner licensed toprescribe the drug that is to be sampledor, at the written request of a licensedpractitioner, to the pharmacy of ahospital or other health care entity, bymail or common carrier, provided that:

(1) The licensed practitioner executesand submits a written request to themanufacturer or authorized distributorof record, as set forth in paragraph (b)of this section, before the delivery of thedrug sample;

(2) The manufacturer or authorizeddistributor of record verifies with theappropriate State authority that thepractitioner requesting the drug sampleis licensed or authorized under Statelaw to prescribe the drug product;

(3) The recipient executes a writtenreceipt, as set forth in paragraph (c) of

this section, when the drug sample isdelivered; and

(4) The receipt is returned to themanufacturer or distributor from whichthe drug sample was received.

(b) Contents of the written requestform for delivery of samples by mail orcommon carrier.

(1) A written request for a drugsample to be delivered by mail orcommon carrier to a licensedpractitioner is required to contain thefollowing:

(i) The name, address, professionaltitle, and signature of the practitionermaking the request;

(ii) The practitioner’s State license orauthorization number or, where ascheduled drug product is requested,the practitioner’s Drug EnforcementAdministration number.

(iii) The proprietary or establishedname and the strength of the drugsample requested;

(iv) The quantity requested;(v) The name of the manufacturer and

the authorized distributor of record, ifthe drug sample is requested from anauthorized distributor of record; and

(vi) The date of the request.(2) A written request for a drug

sample to be delivered by mail orcommon carrier to the pharmacy of ahospital or other health care entity isrequired to contain, in addition to all ofthe information in paragraph (b)(l) ofthis section, the name and address ofthe pharmacy of the hospital or otherhealth care entity to which the drugsample is to be delivered.

(c) Contents of the receipt to becompleted upon delivery of a drugsample. The receipt is to be on a formdesignated by the manufacturer ordistributor, and is required to containthe following:

(1) If the drug sample is delivered tothe licensed practitioner who requestedit, the receipt is required to contain thename, address, professional title, andsignature of the practitioner or thepractitioner’s designee whoacknowledges delivery of the drugsample; the proprietary or establishedname and strength of the drug sampleand the quantity of the drug sampledelivered; and the date of the delivery.

(2) If the drug sample is delivered tothe pharmacy of a hospital or otherhealth care entity at the request of alicensed practitioner, the receipt isrequired to contain the name andaddress of the requesting licensedpractitioner; the name and address ofthe hospital or health care entitypharmacy designated to receive the drugsample; the name, address, professionaltitle, and signature of the personacknowledging delivery of the drug



sample; the proprietary or establishedname and strength of the drug sample;the quantity of the drug sampledelivered; and the date of the delivery.

§ 203.31 Sample distribution by meansother than mail or common carrier (directdelivery by a representative or detailer).

(a) Requirements for drug sampledistribution by means other than mail orcommon carrier. A manufacturer orauthorized distributor of record maydistribute by means other than mail orcommon carrier, by a representative ordetailer, a drug sample to a practitionerlicensed to prescribe the drug to besampled or, at the written request ofsuch a licensed practitioner, to thepharmacy of a hospital or other healthcare entity, provided that:

(1) The manufacturer or authorizeddistributor of record receives from thelicensed practitioner a written requestsigned by the licensed practitionerbefore the delivery of the drug sample;

(2) The manufacturer or authorizeddistributor of record verifies with theappropriate State authority that thepractitioner requesting the drug sampleis licensed or authorized under Statelaw to prescribe the drug product;

(3) A receipt is signed by therecipient, as set forth in paragraph (c) ofthis section, when the drug sample isdelivered;

(4) The receipt is returned to themanufacturer or distributor; and

(5) The requirements of paragraphs (d)through (e) of this section are met.

(b) Contents of the written requestforms for delivery of samples by arepresentative. (1) A written request fordelivery of a drug sample by arepresentative to a licensed practitioneris required to contain the following:

(i) The name, address, professionaltitle, and signature of the practitionermaking the request;

(ii) The practitioner’s State license orauthorization number, or, where ascheduled drug product is requested,the practitioner’s Drug EnforcementAdministration number;

(iii) The proprietary or establishedname and the strength of the drugsample requested;

(iv) The quantity requested;(v) The name of the manufacturer and

the authorized distributor of record, ifthe drug sample is requested from anauthorized distributor of record; and

(vi) The date of the request.(2) A written request for delivery of a

drug sample by a representative to thepharmacy of a hospital or other healthcare entity is required to contain, inaddition to all of the information inparagraph (b) of this section, the nameand address of the pharmacy of the

hospital or other health care entity towhich the drug sample is to bedelivered.

(c) Contents of the receipt to becompleted upon delivery of a drugsample. The receipt is to be on a formdesignated by the manufacturer ordistributor, and is required to containthe following:

(1) If the drug sample is received atthe address of the licensed practitionerwho requested it, the receipt is requiredto contain the name, address,professional title, and signature of thepractitioner or the practitioner’sdesignee who acknowledges delivery ofthe drug sample; the proprietary orestablished name and strength of thedrug sample; the quantity of the drugsample delivered; and the date of thedelivery.

(2) If the drug sample is received bythe pharmacy of a hospital or otherhealth care entity at the request of alicensed practitioner, the receipt isrequired to contain the name andaddress of the requesting licensedpractitioner; the name and address ofthe hospital or health care entitypharmacy designated to receive the drugsample; the name, address, professionaltitle, and signature of the personacknowledging delivery of the drugsample; the proprietary or establishedname and strength of the drug sample;the quantity of the drug sampledelivered; and the date of the delivery.

(d) Inventory and reconciliation ofdrug samples of manufacturers’ anddistributors’ representatives. Each drugmanufacturer or authorized distributorof record that distributes drug samplesby means of representatives shallconduct, at least annually, a completeand accurate physical inventory of alldrug samples. All drug samples in thepossession or control of eachmanufacturer’s and distributor’srepresentatives are required to beinventoried and the results of theinventory are required to be recorded inan inventory record, as specified inparagraph (d)(1) of this section. Inaddition, manufacturers and distributorsshall reconcile the results of thephysical inventory with the mostrecently completed prior physicalinventory and create a reportdocumenting the reconciliation process,as specified in paragraph (d)(2) of thissection.

(1) The inventory record is required toidentify all drug samples in arepresentative’s stock by the proprietaryor established name, dosage strength,and number of units.

(2) The reconciliation report isrequired to include:

(i) The inventory record for the mostrecently completed prior inventory;

(ii) A record of each drug sampleshipment received since the mostrecently completed prior inventory,including the sender and date of theshipment, and the proprietary orestablished name, dosage strength, andnumber of sample units received;

(iii) A record of drug sampledistributions since the most recentlycompleted inventory showing the nameand address of each recipient of eachsample unit shipped, the date of theshipment, and the proprietary orestablished name, dosage strength, andnumber of sample units shipped. Forthe purposes of this paragraph andparagraph (d)(2)(v) of this section,‘‘distributions’’ includes distributions tohealth care practitioners or designatedhospital or health care entitypharmacies, transfers or exchanges withother firm representatives, returns to themanufacturer or authorized distributor,destruction of drug samples by a salesrepresentative, and other types of drugsample dispositions. The specific typeof distribution must be specified in therecord;

(iv) A record of drug sample thefts orsignificant losses reported by therepresentative since the most recentlycompleted prior inventory, includingthe approximate date of the occurrenceand the proprietary or established name,dosage strength, and number of sampleunits stolen or lost; and

(v) A record summarizing theinformation required by paragraphs(d)(2)(ii) through (d)(2)(iv) of thissection. The record must show, for eachtype of sample unit (i.e., sample unitshaving the same established orproprietary name and dosage strength),the total number of sample unitsreceived, distributed, lost, or stolensince the most recently completed priorinventory. For example, a typical entryin this record may read ‘‘50 unitsrisperidone (1 mg) returned tomanufacturer’’ or simply ‘‘Risperidone(1 mg)/50/returned to manufacturer.’’

(3) Each drug manufacturer orauthorized distributor of record shalltake appropriate internal controlmeasures to guard against error andpossible fraud in the conduct of thephysical inventory and reconciliation,and in the preparation of the inventoryrecord and reconciliation report.

(4) A manufacturer or authorizeddistributor of record shall carefullyevaluate any apparent discrepancy orsignificant loss revealed through theinventory and reconciliation processand shall fully investigate any suchdiscrepancy or significant loss thatcannot be justified.



(e) Lists of manufacturers’ anddistributors’ representatives. Each drugmanufacturer or authorized distributorof record who distributes drug samplesby means of representatives shallmaintain a list of the names andaddresses of its representatives whodistribute drug samples and of the siteswhere drug samples are stored.

§ 203.32 Drug sample storage andhandling requirements.

(a) Storage and handling conditions.Manufacturers, authorized distributorsof record, and their representatives shallstore and handle all drug samples underconditions that will maintain theirstability, integrity, and effectiveness andensure that the drug samples are free ofcontamination, deterioration, andadulteration.

(b) Compliance with compendial andlabeling requirements. Manufacturers,authorized distributors of record, andtheir representatives can generallycomply with this section by followingthe compendial and labelingrequirements for storage and handling ofa particular prescription drug inhandling samples of that drug.

§ 203.33 Drug sample forms.

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

§ 203.34 Policies and procedures;administrative systems.

Each manufacturer or authorizeddistributor of record that distributesdrug samples shall establish, maintain,and adhere to written policies andprocedures describing its administrativesystems for the following:

(a) Distributing drug samples by mailor common carrier, includingmethodology for reconciliation ofrequests and receipts;

(b) Distributing drug samples bymeans other than mail or commoncarrier including the methodology for:

(1) Reconciling requests and receipts,identifying patterns of nonresponse, andthe manufacturer’s or distributor’sresponse when such patterns are found;

(2) Conducting the annual physicalinventory and preparation of thereconciliation report;

(3) Implementing a sampledistribution security and audit system,including conducting random and for-

cause audits of sales representatives bypersonnel independent of the salesforce; and

(4) Storage of drug samples byrepresentatives;

(c) Identifying any significant loss ofdrug samples and notifying FDA of theloss; and

(d) Monitoring any loss or theft ofdrug samples.

§ 203.35 Standing requests.Manufacturers or authorized

distributors of record shall notdistribute drug samples on the basis ofopen-ended or standing requests, butshall require separate written requestsfor each drug sample or group ofsamples. An arrangement by which alicensed practitioner requests in writingthat a specified number of drug samplesbe delivered over a period of not morethan 6 months, with the actual deliverydates for parts of the order to be set bysubsequent oral communication orelectronic transmission, is notconsidered to be a standing request.

§ 203.36 Fulfillment houses, shipping andmailing services, comarketing agreements,and third-party recordkeeping.

(a) Responsibility for creating andmaintaining forms, reports, and records.Any manufacturer or authorizeddistributor of record that uses afulfillment house, shipping or mailingservice, or other third party, or engagesin a comarketing agreement withanother manufacturer or distributor todistribute drug samples or to meet anyof the requirements of PDMA, PDA, orthis part, remains responsible forcreating and maintaining all requests,receipts, forms, reports, and recordsrequired under PDMA, PDA, and thispart.

(b) Responsibility for producingrequested forms, reports, or records. Amanufacturer or authorized distributorof record that contracts with a thirdparty to maintain some or all of itsrecords shall produce requested forms,reports, records, or other requireddocuments within 2 business days of arequest by an authorized representativeof FDA or another Federal, State, orlocal regulatory or law enforcementofficial.

§ 203.37 Investigation and notificationrequirements.

(a) Investigation of falsification ofdrug sample records. A manufacturer orauthorized distributor of record that hasreason to believe that any person hasfalsified drug sample requests, receipts,or records, or is diverting drug samples,shall:

(1) Notify FDA, by telephone or inwriting, within 5 working days;

(2) Immediately initiate aninvestigation; and

(3) Provide FDA with a completewritten report, including the reason forand the results of the investigation, notlater than 30 days after the date of theinitial notification in paragraph (a)(1) ofthis section.

(b) Significant loss or known theft ofdrug samples. A manufacturer orauthorized distributor of record thatdistributes drug samples or a charitableinstitution that receives donated drugsamples from a licensed practitionershall:

(1) Notify FDA, by telephone or inwriting, within 5 working days ofbecoming aware of a significant loss orknown theft;

(2) Immediately initiate aninvestigation into the significant loss orknown theft; and

(3) Provide FDA with a completewritten report, including the reason forand the results of the investigation, notlater than 30 days after the date of theinitial notification in paragraph (b)(1) ofthis section.

(c) Conviction of a representative.(1) A manufacturer or authorized

distributor of record that distributesdrug samples shall notify FDA, bytelephone or in writing, within 30 daysof becoming aware of the conviction ofone or more of its representatives for aviolation of section 503(c)(1) of the actor any State law involving the sale,purchase, or trade of a drug sample orthe offer to sell, purchase, or trade adrug sample.

(2) A manufacturer or authorizeddistributor of record shall provide FDAwith a complete written report not laterthan 30 days after the date of the initialnotification.

(d) Selection of individual responsiblefor drug sample information. Amanufacturer or authorized distributorof record that distributes drug samplesshall inform FDA in writing within 30days of selecting the individualresponsible for responding to a requestfor information about drug samples ofthat individual’s name, businessaddress, and telephone number.

(e) Whom to notify at FDA.Notifications and reports concerningprescription human drugs shall be madeto the Division of Prescription DrugCompliance and Surveillance (HFD–330), Office of Compliance, Center forDrug Evaluation and Research, Foodand Drug Administration, 7520 StandishPl., Rockville, MD 20855. Notificationsand reports concerning prescriptionhuman biological products shall bemade to the Division of Inspections andSurveillance (HFM–650), Office ofCompliance, Center for Biologics



Evaluation and Research, Food andDrug Administration, 1401 RockvillePike, Rockville, MD 20852.

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

(a) Lot or control number required ondrug sample labeling and sample unitlabel. The manufacturer or authorizeddistributor of record of a drug sampleshall include on the label of the sampleunit and on the outside container orpackaging of the sample unit, if any, anidentifying lot or control number thatwill permit the tracking of thedistribution of each drug sample unit.

(b) Records containing lot or controlnumbers required for all drug samplesdistributed. A manufacturer orauthorized distributor of record shallmaintain for all samples distributedrecords of drug sample distributioncontaining lot or control numbers thatare sufficient to permit the tracking ofsample units to the point of the licensedpractitioner.

(c) Labels of sample units. Eachsample unit shall bear a label thatclearly denotes its status as a drugsample, e.g., ‘‘sample,’’ ‘‘not for sale,’’‘‘professional courtesy package.’’

(1) A drug that is labeled as a drugsample is deemed to be a drug samplewithin the meaning of the act.

(2) A drug product dosage unit thatbears an imprint identifying the dosageform as a drug sample is deemed to bea drug sample within the meaning of theact.

(3) Notwithstanding paragraphs (c)(1)and (c)(2) of this section, any article thatis a drug sample as defined in section503(c)(1) of the act and § 203.3(i) thatfails to bear the label required in thisparagraph (c) is a drug sample.

§ 203.39 Donation of drug samples tocharitable institutions.

A charitable institution may receive adrug sample donated by a licensedpractitioner or another charitableinstitution for dispensing to a patient ofthe charitable institution, or donate adrug sample to another charitableinstitution for dispensing to its patients,provided that the followingrequirements are met:

(a) A drug sample donated by alicensed practitioner or donatingcharitable institution shall be receivedby a charitable institution in its original,unopened packaging with its labelingintact.

(b) Delivery of a donated drug sampleto a recipient charitable institution shallbe completed by mail or commoncarrier, collection by an authorizedagent or employee of the recipientcharitable institution, or personal

delivery by a licensed practitioner or anagent or employee of the donatingcharitable institution. Donated drugsamples shall be placed by the donor ina sealed carton for delivery to orcollection by the recipient charitableinstitution.

(c) A donated drug sample shall notbe dispensed to a patient or bedistributed to another charitableinstitution until it has been examinedby a licensed practitioner or registeredpharmacist at the recipient charitableinstitution to confirm that the donationrecord accurately describes the drugsample delivered and that no drugsample is adulterated or misbranded forany reason, including, but not limitedto, the following:

(1) The drug sample is out of date;(2) The labeling has become

mutilated, obscured, or detached fromthe drug sample packaging;

(3) The drug sample shows evidenceof having been stored or shipped underconditions that might adversely affectits stability, integrity, or effectiveness;

(4) The drug sample is for aprescription drug product that has beenrecalled or is no longer marketed; or

(5) The drug sample is otherwisepossibly contaminated, deteriorated, oradulterated.

(d) The recipient charitable institutionshall dispose of any drug sample foundto be unsuitable by destroying it or byreturning it to the manufacturer. Thecharitable institution shall maintaincomplete records of the disposition ofall destroyed or returned drug samples.

(e) The recipient charitable institutionshall prepare at the time of collection ordelivery of a drug sample a completeand accurate donation record, a copy ofwhich shall be retained by the recipientcharitable institution for at least 3 years,containing the following information:

(1) The name, address, and telephonenumber of the licensed practitioner (ordonating charitable institution);

(2) The manufacturer, brand name,quantity, and lot or control number ofthe drug sample donated; and

(3) The date of the donation.(f) Each recipient charitable

institution shall maintain complete andaccurate records of donation, receipt,inspection, inventory, dispensing,redistribution, destruction, and returnssufficient for complete accountabilityand auditing of drug sample stocks.

(g) Each recipient charitableinstitution shall conduct, at leastannually, an inventory of prescriptiondrug sample stocks and shall prepare areport reconciling the results of eachinventory with the most recent priorinventory. Drug sample inventorydiscrepancies and reconciliation

problems shall be investigated by thecharitable institution and reported toFDA.

(h) A recipient charitable institutionshall store drug samples underconditions that will maintain thesample’s stability, integrity, andeffectiveness, and will ensure that thedrug samples will be free ofcontamination, deterioration, andadulteration.

(i) A charitable institution shall notifyFDA within 5 working days of becomingaware of a significant loss or knowntheft of prescription drug samples.

Subpart E—Wholesale Distribution

§ 203.50 Requirements for wholesaledistribution of prescription drugs.

(a) Identifying statement for sales byunauthorized distributors. Before thecompletion of any wholesaledistribution by a wholesale distributorof a prescription drug for which theseller is not an authorized distributor ofrecord to another wholesale distributoror retail pharmacy, the seller shallprovide to the purchaser a statementidentifying each prior sale, purchase, ortrade of such drug. This identifyingstatement shall include:

(1) The proprietary and establishedname 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 transactioninvolving the drug, starting with themanufacturer; and

(7) The date of each previoustransaction.

(b) The drug origin statement issubject to the record retentionrequirements of § 203.60 and must beretained by all wholesale distributorsinvolved in the distribution of the drugproduct, whether authorized orunauthorized, for 3 years.

(c) Identifying statement not requiredwhen additional manufacturingprocesses are completed. Amanufacturer that subjects a drug to anyadditional manufacturing processes toproduce a different drug is not requiredto provide to a purchaser a statementidentifying the previous sales of thecomponent drug or drugs.

(d) List of authorized distributors ofrecord. Each manufacturer shallmaintain at the corporate offices acurrent written list of all authorizeddistributors of record.

(1) Each manufacturer’s list ofauthorized distributors of record shallspecify whether each distributor listed



thereon is authorized to distribute themanufacturer’s full product line or onlyparticular, specified products.

(2) Each manufacturer shall update itslist of authorized distributors of recordon a continuing basis.

(3) Each manufacturer shall make itslist of authorized distributors of recordavailable on request to the public forinspection or copying. A manufacturermay impose reasonable copying chargesfor such requests from members of thepublic.

Subpart F—Request and ReceiptForms, Reports, and Records

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

(a) Use of electronic records,electronic signatures, and handwrittensignatures executed to electronicrecords.

(1) Provided the requirements of part11 of this chapter are met, electronicrecords, electronic signatures, andhandwritten signatures executed toelectronic records may be used as analternative to paper records andhandwritten signatures executed onpaper to meet any of the record andsignature requirements of PDMA, PDA,or this part.

(2) Combinations of paper records andelectronic records, electronic recordsand handwritten signatures executed onpaper, or paper records and electronicsignatures or handwritten signaturesexecuted to electronic records, may beused to meet any of the record andsignature requirements of PDMA, PDA,or this part, provided that:

(i) The requirements of part 11 of thischapter are met for the electronicrecords, electronic signatures, orhandwritten signatures executed toelectronic records; and

(ii) A reasonably secure link betweenthe paper-based and electroniccomponents exists such that thecombined records and signatures aretrustworthy and reliable, and to ensurethat the signer cannot readily repudiatethe signed records as not genuine.

(3) For the purposes of this paragraph(a), the phrase ‘‘record and signaturerequirements of PDMA, PDA, or thispart’’ includes drug sample request andreceipt forms, reports, records, andother documents, and their associatedsignatures required by PDMA, PDA, andthis part.

(b) Maintenance of request andreceipt forms, reports, records, andother documents created on paper.Request and receipt forms, reports,records, and other documents createdon paper may be maintained on paperor by photographic imaging (i.e.,

photocopies or microfiche), providedthat the security and authenticationrequirements described in paragraph (c)of this section are followed. Where arequired document is created on paperand electronically scanned into acomputer, the resulting record is anelectronic record that must meet therequirements of part 11 of this chapter.

(c) Security and authenticationrequirements for request and receiptforms, reports, records, and otherdocuments created on paper. A requestor receipt form, report, record, or otherdocument, and any signature appearingthereon, that is created on paper andthat is maintained by photographicimaging, or transmitted electronically(i.e., by facsimile) shall be maintainedor transmitted in a form that providesreasonable assurance of being:

(1) Resistant to tampering, revision,modification, fraud, unauthorized use,or alteration;

(2) Preserved in accessible andretrievable fashion; and

(3) Available to permit copying forpurposes of review, analysis,verification, authentication, andreproduction by the person whoexecuted the form or created the record,by the manufacturer or distributor, andby authorized personnel of FDA andother regulatory and law enforcementagencies.

(d) Retention of request and receiptforms, reports, lists, records, and otherdocuments. Any person required tocreate or maintain reports, lists, or otherrecords under PDMA, PDA, or this part,including records relating to thedistribution of drug samples, shallretain them for at least 3 years after thedate of their creation.

(e) Availability of request and receiptforms, reports, lists, and records. Anyperson required to create or maintainrequest and receipt forms, reports, lists,or other records under PDMA, PDA, orthis part shall make them available,upon request, in a form that permitscopying or other means of duplication,to FDA or other Federal, State, or localregulatory and law enforcement officialsfor review and reproduction. Therecords shall be made available within2 business days of a request.

Subpart G—Rewards

§ 203.70 Application for a reward.(a) Reward for providing information

leading to the institution of a criminalproceeding against, and conviction of, aperson for the sale, purchase, or tradeof a drug sample. A person whoprovides information leading to theinstitution of a criminal proceedingagainst, and conviction of, a person for

the sale, purchase, or trade of a drugsample, or the offer to sell, purchase, ortrade a drug sample, in violation ofsection 503(c)(1) of the act, is entitled toone-half the criminal fine imposed andcollected for such violation, but notmore than $125,000.

(b) Procedure for making applicationfor a reward for providing informationleading to the institution of a criminalproceeding against, and conviction of, aperson for the sale, purchase, or tradeof a drug sample. A person whoprovides information leading to theinstitution of a criminal proceedingagainst, and conviction of, a person forthe sale, purchase, or trade of a drugsample, or the offer to sell, purchase, ortrade a drug sample, in violation ofsection 503(c)(1) of the act, may applyfor a reward by making writtenapplication to:

(1) Director, Office of Compliance(HFD–300), Center for Drug Evaluationand Research, Food and DrugAdministration, 7500 Standish Pl.,Rockville, MD 20855; or

(2) Director, Office of Compliance andBiologics Quality (HFM–600), Center forBiologics Evaluation and Research,Food and Drug Administration, 1401Rockville Pike, Rockville, MD 20852, asappropriate.

PART 205—GUIDELINES FOR STATELICENSING OF WHOLESALEPRESCRIPTION DRUG DISTRIBUTORS

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

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

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

§ 205.3 Definitions.

* * * * *(f) * * *(9) Drug returns, when conducted by

a hospital, health care entity, orcharitable institution in accordancewith § 203.23 of this chapter; or

(10) The sale of minimal quantities ofdrugs by retail pharmacies to licensedpractitioners for office use.* * * * *

(h) Health care entity means anyperson that provides diagnostic,medical, surgical, or dental treatment, orchronic or rehabilitative care, but doesnot include any retail pharmacy or anywholesale distributor. A person cannotsimultaneously be a ‘‘health care entity’’and a retail pharmacy or wholesaledistributor.

4. Section 205.50 is amended byrevising paragraph (f)(2) to read asfollows:



§ 205.50 Minimum requirements for thestorage and handling of prescription drugsand for the establishment and maintenanceof prescription drug distribution records.* * * * *

(f) * * *(2) Inventories and records shall be

made available for inspection andphotocopying by authorized Federal,State, or local law enforcement agencyofficials for a period of 3 years after thedate of their creation.

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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Determination of Tax Liability

CFR CorrectionIn Title 26 of the Code of Federal

Regulations, part 1 (§ § 1.641 to 1.850),revised as of April 1, 1999, page 293, in§ 1.704–-1 (b)(0), in the table in the firstcolumn, under ‘‘Section’’ the first,second, fourth and fifth linesrespectively should read, 1.704–1(b)(0),1.704–1(b)(1), 1.704-1 (b)(1)(ii) and1.704–1(b)(1)(iii).

Also, in the second column, under‘‘Heading’’ ‘‘Maintenance of capitalaccounts’’ make the following changesin the second column of the table:

1.704–1(b)(2)(d)(2) should read 1.704–1(b)(2)(iv)(d)(2)

1.704–1(b)(2)(iv)(3) should read1.704–1(b)(2)(iv)(d)(3)

1.704–1(2)(iv)(e)(1) should read1.704–1(b)(2)(iv)(e)(1)

1.704–1(b)(2)(e)(2) should read 1.704–1(b)(2)(iv)(e)(2)

[FR Doc. 99–55540 Filed 12–2–99; 8:45 am]BILLING CODE 1505–01–D

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 20

[TD 8846]

RIN 1545–AV45

Deductions for Transfers for Public,Charitable, and Religious Uses; InGeneral Marital Deduction; Valuationof Interest Passing to SurvivingSpouse

AGENCY: Internal Revenue Service (IRS),Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations relating to the effect ofcertain administration expenses on thevaluation of property that qualifies foreither the estate tax marital deductionunder section 2056 of the InternalRevenue Code or the estate taxcharitable deduction under section2055. The regulations distinguishbetween estate transmission expenses,which reduce the value of property formarital and charitable deductionpurposes, and estate managementexpenses, which generally do notreduce the value of property for thesepurposes.EFFECTIVE DATES: These regulations areeffective on December 3, 1999.FOR FURTHER INFORMATION CONTACT:Deborah Ryan, (202) 622–3090 (not atoll-free number).SUPPLEMENTARY INFORMATION:

BackgroundOn December 16, 1998, the Treasury

Department and the IRS published inthe Federal Register (63 FR 69248) anotice of proposed rulemaking (REG–114663–97) relating to the effect ofcertain administration expenses on thevaluation of property which qualifies forthe estate tax marital or charitablededuction. The proposed regulationswere issued in response to the decisionof the Supreme Court of the UnitedStates in Commissioner v. Estate ofHubert, 520 U.S. 93 (1997) (1997–2 C.B.231). Written comments responding tothe notice of proposed rulemaking werereceived, and a public hearing was heldon April 21, 1999, at which time oraltestimony was presented. This Treasurydecision adopts final regulations withrespect to the notice of proposedrulemaking. A summary of the principalcomments received and revisions madein response to those comments isprovided below.

The proposed regulations set forth thesubstantive provisions as applied to theestate tax marital deduction in§ 20.2056(b)–4(a). For the estate taxcharitable deduction, the proposedregulations (under § 20.2055–1(d)(6))merely cross-reference the rules for themarital deduction.

Several commentators suggested thatthe regulations under section 2055should contain specific rules relating tothe charitable deduction, rather thanjust a cross-reference. The Treasury andthe IRS agree with this suggestion. Thefinal regulations contain rules under§ 20.2055–3 specifically addressing theeffect of administration expenses on thevaluation of property when all or aportion of the interests in property

qualify for the estate tax charitablededuction.

Several commentators stated that thedistinction between estate transmissionexpenses and estate managementexpenses was not clearly made in theproposed regulations and requestedmore concrete definitions of each typeof expense. In response to thesecomments, the final regulationscharacterize estate transmissionexpenses as those expenses that wouldnot have been incurred except for thedecedent’s death. Although the amountof these expenses cannot be calculatedwith any degree of certainty on the dateof the decedent’s death, they areexpenses that are incurred because ofthe decedent’s death. Estatemanagement expenses, on the otherhand, are characterized in the finalregulations as expenses that would beincurred with respect to the propertyeven if the decedent had not died; thatis, expenses incurred in investing,maintaining, and preserving theproperty. These are expenses thattypically would have been incurredwith respect to the property by thedecedent before death or by thebeneficiaries had they received theproperty on the date of death withoutany intervening period ofadministration. In order to be certainthat all expenses are classified as eithertransmission expenses or managementexpenses, transmission expenses aredefined to include all expenses that arenot management expenses.

Three commentators stated that thedifferent treatment accorded to estatetransmission expenses and estatemanagement expenses under theproposed regulations creates a newfederal standard for allocating expensesthat may be contrary to the manner inwhich the expenses must be chargedunder state law. However, the Treasuryand the IRS believe that the allocationof administration expenses based on thedistinction between transmission andmanagement expenses provides themost accurate measure of the value ofthe property which passes to thesurviving spouse or to the charity at themoment of the decedent’s death forfederal estate tax marital and charitablededuction purposes. Transmissionexpenses that are charged to theproperty passing to the surviving spouseor to the charity reduce the amount ofthat property as of the date of thedecedent’s death because the expenses,as well as the transfer to the survivingspouse or to charity, are a consequenceof, and arise as a result of, thedecedent’s death. In contrast,management expenses do not generally


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