Thursday, September 14, 2006

Shifting the FDA’s RFID Policy into Second Gear

RFID Law Journal
Newsletter No. 11
September 14, 2006

Although healthcare stakeholders, including pharmaceutical companies, medical equipment suppliers, wholesale distributors, pharmacies, hospitals and policymakers, share incentives to improve the health care industry’s supply chain best practices, the pharma/medical equipment industries are, in general, industry laggards with respect to RFID’s adoption within their supply chains. RFID subject matter experts contend that given several obvious supply chain benefits, including the ability to deter/prevent counterfeiting, speed product recalls, and improve product and patient identification (and thereby improve safety), the adoption of RFID technology is a ‘no brainer’ for this sector. Yet, the pharmaceutical and medical equipment industries have, other than conducting pilots for select drugs, been largely deferring their investments in new supply chain technologies. We believe that the regulatory environment (established by the FDA) and the negotiating power of end-users are playing a role in these manufacturers’ deployment decisions.

A contrasting situation has certainly evolved in both the aerospace and the defense sectors. Those manufacturers must meet the supply chain demands of customers and precise regulatory requirements. Having announced its RFID policy in July, 2004, the Department of Defense has backed it up with regulatory “teeth” (as well as notices, educational training of suppliers, etc.), having passed substantive RFID tagging requirements (not to mention UID requirements) that will eventually impact tens of thousands of suppliers by 2007. It is noteworthy that once these manufacturers started examining auto identification technologies, many of them recognized that substantial gains could be derived from not only deploying RFID within their supply chains to their end-customers (e.g., spare parts supplied to government depots) but also leveraging RFID to more efficiently manufacture their products (e.g., Boeing’s new 787).

It is worth noting that the FDA started issuing policy statements in favor of RFID deployment at about the same time as other agencies. The FDA’s favorable policy view is consistent with GSA Bulletin FMR B-7 (Radio Frequency Identification) (December 2004), which directed the heads of all federal agencies to review processes and consider strategies for the future use of RFID technology. And yet, as of the fall of 2006, the DoD is in the midst of a substantial expansion of its RFID deployment efforts, the Department of State is unveiling its e-Passport, the DHS is expanding the use of RFID within its U.S. VISITOR program, etc. It is fair to ask - where’s the beef - within the FDA's RFID policy?

In November, 2004, the FDA issued its “Compliance Policy Guidelines – RFID Feasibility Studies and Pilot Programs for Drugs” wherein it concluded (at the urging of industry stakeholders) that ‘track-and-trace’ technology deployment within the pharmaceutical supply chain would be “widespread” by 2007. As a result, the FDA essentially deferred establishing a hard deadline for the pharmaceutical industry to implement electronic pedigree procedures. Absent the “teeth” available to other federal agencies, the absence of any mass deployment of RFID (or any other enabling technology) for track-and-trace shouldn’t come as a surprise. (Ironically, several of the so-called “early” deployments consisted of early adopters, such as Purdue Pharma and H.D. Smith, acting to gain a competitive advantage (e.g., lock down relationship with Wal-Mart by ‘opting’ into its RFID rollout) as opposed to industry leaders conducting widespread pilots among their sizeable drug portfolios.)

The 2004 FDA Counterfeit Drug Task Force Report stated, among other things, that:

-Feasible, widely adopted electronic ‘track and trace’ technology helping secure the integrity of the pharmaceutical supply chain would be feasible by 2007.
-That this electronic ‘track and trace’ technology would provide accurate drug ‘pedigree’ (i.e., a record of the chain of custody of the product moving through the supply chain from the manufacturer to the pharmacy).
-RFID is a promising technology to achieve e-pedigree.
-The effective date of applicable regulations relating to the PDMA (Prescription Drug Marketing Act) should be delayed until December 1, 2006 to ensure that stakeholders focus on implementing widespread use of e-pedigree.

On June 9, 2006, the FDA Counterfeit Drug Task Force issued its latest report, with the key recommendation of lifting the “stay” on implementing pedigree rules (which had been on the books since the original PDMA) and issuing a draft Compliance Policy Guide (CPG 160.900) that requires inspections of wholesale chain of custody activities in January, 2007. It’s interesting that the basic message of the Task Force is that while “significant” progress has been made to establish widespread use of e-pedigree, this goal could not be met by 2007, and while the FDA believes that RFID is the “most promising technology” for implementing electronic “track and trace” in the pharmaceutical supply chain, the FDA is not willing to put any teeth behind a wider adoption of the technology within this sector. According to Associate Commissioner Lutter, the “stakeholders should move quickly to implement this technology.” Short of regulatory teeth (which has been absent for almost 20 years following the PDMA's passage), why, precisely, “should” these stakeholders make the sizeable investment in any new technology?

The 2006 FDA Task Force also recommended that “manufacturers take a risk-based approach to implementation,” meaning, in essence, rationalizing their tagging policies based upon metrics like sales, price, volume, demand, ease of counterfeiting, prior history of counterfeiting and diversion, etc. In essence, that’s what is currently ongoing over at the major pharmaceuticals. The high volume, blockbuster drugs represent first stage deployment for most of the large pharma companies. Absent regulatory prodding, most of these companies will be making their deployment decisions (re: e-pedigree enabling technologies) on a brand-by-brand basis based on a ROI metric. Query whether a brand-by-brand approach makes sense, given that drug companies have historically faced enormous contingent liability exposure arising out of significant problems with one or another brand. If a company widely disperses e-pedigree capabilities across its supply chain, shouldn't it assign a sizeable 'contingent' value to such deployments because improved logistics may help them more effectively rule in/out counterfeit brands and enable faster recalls when those 'worst case scearnios' do arise? At the current pace of deployment, it seems likely that such risk allocation implications will not enter into the equation for quite awhile.

The 2006 Task Force also identified the following obstacles: (1) mass serialization and unique ID of each drug package, (2) universal pedigree with national uniform information and (3) privacy / labeling issues. However, if the pedigree rules lack the teeth of other federal regulations (so as to cause pharmaceuticals and medical equipment companies to make substantial investments in the technology) and the technology is scheduled for roll out in a fairly prescribed fashion (i.e., one brand piloted after another), how does the FDA expect the RFID industry, with scarce resources to ‘chase’ pilots, to make adequate investments to attack these problems?

A finalized CPG is expected by year-end; however, as things stand, there is no universal pedigree standard for drug shipments and a phased-in approach (focused on high volume / high priced shipments) seems the likely policy direction for the time being. This translates into a significantly slower adoption rate than might take place had the FDA pushed out e-pedigree rules with teeth. Indeed, a key loophole in the current tact allows authorized distributors of record (“ADR”) to track individual shipments through their systems so long as such ADRs can provide sufficient documentation demonstrating receipt of the product directly from a manufacturer and distribution to either a dispensing pharmacy or other retailer. Since the three largest distributors account for ~ 90% of all pharmaceutical distribution and these firms deal directly with drug manufacturers, it is doubtful that the pharmaceutical supply chain will be hurried (by regulators) to deploy an electronic track-and-trace system anytime soon.

In future issues of the RFID Law Journal, we will examine other ongoing RFID policies and regulations impacting health care, including, for example, the piloting of RFID technologies at VA and major university hospitals.

You may find the following links of additional use on the topic of FDA pedigree policy and rules:

Statement of Randall W. Lutter, Ph.D, Associate Commissioner for Policy and Planning, FDA, before Subcommittee on Criminal Justice, Drug Policy and Human Resources Committee on Government Reform, House of Representatives (July 11, 2006) can be found at:

“FDA Draft Compliance Policy Guide 160.900 Prescription Drug Marketing Act – Pedigree Requirements under 21 CFR Part 203 (June 2006)”can be located at the following line:

“FDA Compliance Policy Guidelines – RFID Feasibility Studies and Pilot Programs for Drugs” (November 2004)can be located at:

“FDA Announces New Initiative to Protect U.S. Drug Supply through the Use of RFID” can be found at the following link:

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