By Tish Pahl
In a flurry of end-of-year activity, FDA recently issued a Draft Guidance on the express preemption provisions in §585 of the FDC Act, added last year by the Drug Supply Chain Security Act (or DSCSA). FDA, the pharmaceutical supply chain, and other stakeholders have been working very hard to implement the DSCSA as quickly as possible. In the Draft Guidance, FDA aims to advise industry, States, and local governments on the effect of §585(a) upon State drug product tracing requirements, and the effect of §585(b) upon State wholesale drug distributor and third-party logistics provider (3PL) licensing standards and requirements. Unfortunately, the Draft Guidance falls short of this goal.
FDA’s analysis of §585(a) is limited to repeating the statutory language which, although technically correct, is not especially useful to helping States understand the full extent of the DSCSA’s preemption of their product traceability requirements. Section 585(b) is far more problematic, as FDA erroneously concludes that §585(b)(1) only establishes a minimum set of standards for wholesale distributor and 3PL licensure that States may exceed. In fact, §585(b)(1) precludes States from implementing licensure requirements that enlarge what the DSCSA requires.
Congress Intended to Bring National Uniformity to Licensure
The Draft Guidance ignores Congress’ clearly expressed intent to establish uniform, national licensure standards for wholesalers and 3PLs, with a well-defined floor under and ceiling upon State regulation. Sections 583 and 584 are both entitled “National Standards” for wholesale distributors and 3PLs respectively. Section 585 is entitled “National Uniform Policy.” To “ensur[e] uniformity,” States must meet the standards FDA establishes. See §503(e)(1)(B); §583(b). According to the House Energy & Commerce Committee fact sheet on the DSCSA, “[t]he bill would … [c]reate floor and ceiling licensure standards for wholesale distributors and 3PLs while preserving state authority for licensure issuance and fee collection.” Members of Congress clearly and repeatedly stated that they intended for the DSCSA to replace the patchwork of multiple and conflicting State laws with a uniform national standard for licensure. (See statements in the Congressional Record by Congressman Bob Latta (R-OH) here and Senator John Isakson (R-GA) here).
Congress achieved this national uniformity in §585(b)(1) by using well-known and frequently interpreted statutory language.
What Does §585(b) Say?
Section 585(b)(1) provides that no State or political subdivision may establish or continue any standards, requirements, or regulations “with respect to” wholesale prescription drug distributor or 3PL licensure that “are inconsistent with, less stringent than, directly related to, or covered by” the DSCSA’s standards and requirements. FDA states that this phrase means simply that State licensure standards must not “fall below the minimum standards established by federal law.” See, e.g., Draft Guidance at lines 135, 148-49 (wholesale distributors); line 183 (3PL). This is in error as the language of §585(b) establishes both a minimum floor and a maximum set of standards for wholesale distributor and 3PL licensure that States may not exceed.
What Does §585(b) Mean?
“With respect to”
Section 585(b)(1) provides that State standards, requirements, and regulations “with respect to” wholesale distributor and 3PL licensure are preempted. “With respect to” means that the DSCSA preempts State requirements that “concern” wholesale distributor or 3PL licensure. See Dan’s City Used Cars, Inc. v. Pelkey, 133 S.Ct. 1769, 1778 (2013).
“Inconsistent with” and “Less stringent than”
Section 585(b)(1) preempts any State standards, requirements, or regulations with respect to licensure that “are inconsistent with, less stringent than, directly related to, or covered by” the DSCSA’s standards and requirements. The phrases “inconsistent with” and “less stringent than” are interpreted as setting a minimum “floor” that State licensure requirements must meet. Jones v. Rath Packing Co., 430 U.S. 519, 540 (1977). Congress, however, added two additional phrases, “directly related to” and “covered by,” and these provisions significantly expand the scope of the State laws displaced by §585(b)(1).
“Directly related to” and “Covered by”
The phrase “related to” is broadly preemptive. A State law “relates to” a federal requirement, and so is preempted, if it makes “reference to” or has a “connection with” the federal requirement. Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 (1983). As the DSCSA preempts only State requirements “directly related to” DSCSA requirements, courts would likely turn to ordinary definitions of the modifier “directly.” See, e.g., CSX Transp., Inc. v. Easterwood, 507 U.S. 658, 664-65 (1993). In Black’s Law and Webster’s, “directly” means, among other things, in a “straightforward” or “direct manner.”
A phrase similar to the DSCSA’s “covered by” is also broadly preemptive. The Supreme Court has interpreted the Federal Railroad Safety Act (FRSA), which provided that a federal requirement “covering the subject matter” of a State requirement preempted that State requirement if the federal requirement “comprised,” included,” or “embraced” the State requirement, or if the State requirement was “substantially subsumed by” the federal requirement. Easterwood, 507 U.S. at 664-65. The “covering” language “must be read both “establishing a ceiling” and “precluding additional state regulation.” Id. at 674. Where a federal statute employs “covering the subject matter” preemption language, the federal interest in “consistency and uniformity” means that a State “cannot enlarge or enhance” its requirements “to impose burdens more onerous than those of the federal requirements on matters addressed by the federal regulations.” Drake v. Laboratory Corp. of America Holdings, 488 F.3d 48, 65 (2d Cir. 2006) (interpreting similar “covering” preemption under the Federal Aviation Act).
What Does §585(b)(1) Preempt?
Based upon the foregoing, the Draft Guidance clearly does not reflect the full preemptive scope of §585(b)(1). The DSCSA sets both minimum and maximum limits upon State licensure requirements. Any State requirement that is comprised, included, embraced, or substantially subsumed in, the DSCSA is preempted. Any State requirement that is substantial enough to impede national uniformity or that imposes burdens more onerous than what the DSCSA imposes is also preempted.
And so, for example, States could not continue to require third-party accreditation, such as VAWD, as a condition of licensure as this would impose a burden upon a wholesale distributor more onerous than the DSCSA-required mandatory physical inspection after submission of an initial application under §583(b)(6)). Further, wholesale distributors and 3PLs would be held to DSCSA inspectional standards alone; during inspections States could not impose requirements and burdens beyond what the DSCSA mandates. Similarly, a State could not mandate a longer period of time for maintenance of distribution records as these are “directly related” to the DSCSA-mandated maintenance of records of distributions under §583(b)(2).
When coupled with the savings clauses also in §585, the section may be read as permitting States to continue to regulate in areas that are tangential to and not concerned with licensure, such as assessment of fees for licensure, the scheduling of controlled substances, and the conduct of prescription drug monitoring programs.
The Draft Guidance’s assertion that §585(b)(1) establishes only minimum standards is simply incorrect. Congress employed well-known, well-litigated, well-understood terms in the DSCSA to ensure national, uniform licensure of wholesale distributors and 3PLs. The comment period on the Draft Guidance closed last week, with one comment already raising the same concerns presented here; as more comments are posted to the docket, others are likely to concur. We hope that FDA will carefully consider Congress’ clearly expressed intent, the language it used to express that intent, and the decades of case law interpreting the language Congress carefully selected, and correct the Draft Guidance as soon as possible so that it accurately reflects the DSCSA’s full displacement of State licensure laws.