Increasing complexities in the pharmaceutical supply chain have led to challenges in the purchase and distribution of pharmaceutical products directly to medical practices. While the traditional role of MSOs is centralization of administrative and management functions for medical practices, new roles for MSOs as Logistics[1] or Administrative Services Contractors for pharmaceutical products have evolved. Using this model, the dual goals for a medical practice to leverage its buying power to secure more favorable pricing and potentially facilitate the distribution of certain drugs commonly used by similar medical practices to other providers and the goal to create a new revenue stream for the MSO, can be achieved.
Logistics and administrative services contractors, which the Food and Drug Administration (FDA) considers to be entities that solely contract with other trading partners to provide labor, logistics, or administrative services in a trading partner’s facility, are not considered third party logistics providers (3PLs).[2] These entities do not themselves provide or coordinate the warehousing of product and do not direct the sale or disposition of the product; rather, the medical practice with which the entity is contracting (e.g. via a Management Services Agreement) provides or coordinates the warehousing. Although Administrative Services Contractors may accept and transfer direct possession of product, they do not store and maintain product at their own facility. FDA does not consider such entities to be 3PLs under the Drug Supply Chain Security Act (DSCSA) and does not require 3PL licensing or DSCSA T3 reporting requirements. If the MSO directs the sale or distribution of the product, it cannot be considered an Administrative Services Contractor. However, if the MSO merely engages in group purchasing for entities it services and has contracts with, it is not directing the sale or distribution. For example, if the MSO has ten independent medical practices it purchases medications for, that would not be considered as directing the sale or distribution of the product.
MSOs with Logistics or Administrative Services Contractor roles allow medical practices to optimize operational efficiencies and focus on their mission of caring for patients without having the administrative burden of pharmaceutical product ordering or invoice handling. Additional substantial cost savings results from negotiation of better pricing due to economies of scale and avoidance of having to hire additional staff. The potential expansion of an MSO that has already demonstrated its synergy can be used as a negotiating advantage with pharmaceutical manufacturers and wholesalers. Vendors will appreciate the fact that when the MSO adds another practice it will be easy and profitable for the wholesaler to simply provide the same services to more physicians.
How Frier Levitt Can Help
Frier Levitt offers configurable solutions for medical practices to optimize pharmaceutical supply spend and create or maximize MSOs to meet business goals in the pharmaceutical space. We offer end-to-end DSCSA compliance guidance and advice. Contact us to speak to one of our attorneys.
[1] A logistic contractor handles the logistic operations involving delivery, transportation, and storage of pharmaceutical products. The duties of a logistic specialist involve dealing with goods preparation, shipment receipts, and shipment deliveries.
[2] Food and Drug Administration. Draft Guidance. Identifying Trading Partners Under the Drug Supply Chain and Security Act. August 2017. Section III.D.5. pp. 10-11.
