Pharmacy Considerations When Purchasing Inventory from Online Marketplaces

Rising drug prices have forced consumers to seek out and utilize the most affordable sources to obtain their prescription medications. Whether it’s through commercial insurance, prescription discount cards, or manufacturer assistance programs, patients have multiple resources at their disposal to reduce the out-of-pocket cost of their medications. Similarly, it should come as no surprise that other members of the pharmaceutical drug supply chain, including pharmacies, also endeavor to purchase their prescription drug inventory at reasonable prices.

Recently, online drug marketplaces have become vendors of choice for pharmacies purchasing their prescription and over-the-counter medications. Based on user testimonials, these online marketplaces are affordable and convenient as they offer online invoice management services allowing pharmacies to access their purchase histories with the click of a button. There is no doubt that these online marketplaces offer a valuable service for retail pharmacies, but there may be risks associated with purchasing inventory from these sources. How will the major pharmacy benefit managers (“PBMs”) treat purchases from an online marketplace during an audit?

State and Federal Law Considerations

At the onset, these online marketplaces at least bring into question compliance with State and Federal laws. At the federal level, the Drug Supply Chain Security Act (“DSCSA”) requires participants in the drug supply chain to track a drug at the unit level throughout the drug supply chain. Specifically, when purchasing inventory, pharmacies are required to maintain transaction history, transaction information, and a transaction statement. Transaction information includes:

• Proprietary or established name(s) of the product;
• Strength and dosage form of the product;
• National Drug Code number of the product;
• Container size;
• Number of containers;
• Lot number of the product;
• Date of the transaction;
• Date of the shipment (if more than 24 hours after the date of the transaction);
• Business name and address of the person from whom ownership is being transferred; and
• Business name and address of the person to whom ownership is being transferred.

Most of these online marketplaces represent that they can provide the requisite documentation and information to comply with the DSCSA. However, it is common for marketplaces to only provide Transaction Information upon request from the purchasing pharmacy, or to direct the purchasing pharmacy to obtain this information from the selling pharmacy. Thus, so long as pharmacies request the federally mandated Transaction Information routinely or at the time the purchase is made, there do not appear to be any inherent risks with purchasing inventory from an online marketplace from a federal law perspective.

In addition, the pharmacies utilizing online marketplaces must ensure that they purchase prescription drugs and products from Authorized Trading Partners in accordance with the DSCSA. The DSCSA requires that trading partners of manufacturers, wholesale distributors, dispensers, and repackagers meet the applicable requirements of an Authorized Trading Partner. Specific entities deemed Authorized Trading Partners are as follows:

• Manufacturers and Repackagers – must have a valid registration in accordance with § 510 of the Federal Food, Drug, and Cosmetic Act (“FDC Act”) and accept or transfer direct ownership of a product from or to the manufacturer, repackager, wholesale distributor, or dispenser.
• Wholesale Distributor – must have a valid license under State law or § 583 of the FDC Act, comply with the licensure reporting requirements in § 503(e) of the FDC Act, and accept or transfer direct ownership of a product from or to a manufacturer, repackager, wholesale distributor, or dispenser.
• Third-Party Logistics Providers (“3PL”) – must have a valid license under State law or § 584(a)(1) of the FDC Act, comply with the licensure reporting requirements under § 584(b) of the FDC Act, and accept or transfer possession of a product from or to a manufacturer, repackager, wholesale distributor, or dispenser.
• Dispensers – must have a valid license under State law and accept or transfer direct ownership of a product from or to a manufacturer, repackager, wholesale distributor, or dispenser.[1]

For additional discussion of recent FDA Guidance and discussion of Authorized Trading Partners, please review our recent article.

On the other hand, specific State laws could present potential issues. For instance, many states prohibit pharmacy-to-pharmacy transfer of prescription medications. Others may allow it, but only under certain circumstances such as common ownership between the pharmacies or based on a specific contractual arrangement. Thus, since online marketplaces typically offer a designated pharmacy-to-pharmacy marketplace specifically designed to facilitate such transfers, both the buying and selling pharmacies need to be sure that the transaction is permissible under applicable state law before engaging in any such transaction. Indeed, online marketplace operators acknowledge the potential for violations of state law and include some form of language stating that pharmacy-to-pharmacy transfers “vary by state.”

PBM Considerations

In addition to federal and state law considerations, pharmacies utilizing online marketplaces must consider how such transactions will be received by PBMs during routine pharmacy audits. Specifically, many PBM Provider Manuals contain strict provisions concerning where network pharmacies may source their inventory and the documentation/information that must be provided to avoid drug invoice shortage discrepancies during a PBM audit. For example, most of the major PBMs require their contracted pharmacies to provide full Transaction Information during audits – another reason why pharmacies should always request Transaction Information when utilizing online marketplaces. Further, all PBMs require pharmacies to source medication solely from authorized, licensed, and/or accredited wholesalers/vendors. While credible online marketplaces promote their vetting process of all sellers on their platform, pharmacies should independently confirm the seller’s credentials whenever using an online marketplace to ensure compliance with PBM Provider Manual Terms and Conditions.

Moreover, some of the major PBMs include terms in their Provider Manuals that obligate network pharmacies to purchase certain products, such as diabetic test strips, only from an “Authorized Distributor” or the test strip manufacturer directly. Manufacturers of diabetic test strips typically list their Authorized Distributors on their websites. Thus, before purchasing diabetic test strips from an online marketplace, pharmacies must be sure to cross-check the manufacturer’s Authorized Distributors to verify that the Manufacturer has authorized the seller to sell the product.

Conclusion

Overall, purchasing from online marketplaces offers pharmacies convenience and cost savings. That said, there are certain precautions that pharmacies must take to avoid potential violations of applicable law and/or the terms of their agreements with PBMs. Most importantly, pharmacies must be proactive and ensure that (i) they are purchasing their inventory from reputable, licensed, and authorized distributors; and (ii) they receive all required documentation from the online marketplace including Track and Trace Documentation. Failure to take the aforementioned measures leaves pharmacies exposed to potential recoupment during PBM audits and further action (i.e. network termination).

How Frier Levitt Can Help

Pharmacies sourcing from online marketplaces should consult with an experienced life sciences attorney to ensure compliance with state and federal laws and to avoid violating PBM Provider Manual Terms and Conditions. If your pharmacy is undergoing an audit or investigation and requires assistance, contact Frier Levitt to speak to an attorney. Frier Levitt’s attorneys have substantial experience and knowledge in the specific concerns that PBMs have regarding inventory sourcing and management and have assisted numerous pharmacies to overcome significant audit findings.

[1] See, Identifying Trading Partners Under the Drug Supply Chain Security Act, Guidance for Industry, available at https://www.fda.gov/regulatory-information/search-fda-guidance-documents/identifying-trading-partners-under-drug-supply-chain-security-act.