State-based drug tracking puts Americans at risk

When consumers take prescription and over-the-counter drugs — as more than half of all Americans do each month — they expect those medicines to improve their health, not harm it.

Yet ineffective counterfeit drugs for pain, attention deficit disorder, erectile dysfunction and even the flu have all been recently discovered in U.S. pharmacies. And in the past year, the Food and Drug Administration has had to issue multiple warnings about fake cancer drugs that have penetrated the supply chain. When even a tiny fraction of the medications we rely on are faulty, contaminated, or counterfeit, the health of millions is put at risk.

Over the past several years, pharmaceutical makers have been working with distributors and pharmacies to develop methods that make it easier to spot and eliminate tainted and counterfeit products. Together, they have developed technologies ranging from tamper-proof packaging and unique identification codes to authentication tools such as holograms and color-shifting printing, all of which help protect the integrity of the medicines we buy.

Unfortunately, state legislators and regulators have begun to implement a maze of inflexible, expensive and often conflicting traceability and pedigree rules that threaten to short-circuit these innovations and jeopardize the effectiveness of industry-wide quality control programs.

{mosads}Currently, 11 states have enacted special “track and trace” legislation, and 18 others have adopted their own regulatory standards, with little uniformity. And those state-by-state compliance costs are astronomical. California, for example, has adopted a rule that will require all drugs to be serialized and electronically tracked by 2017. The pharmaceutical industry is projected to shell out up to $3.5 billion to meet new requirements in the Golden State alone.

It makes sense for states to regulate commerce that occurs entirely within their own borders. But the U.S. Constitution gives power over interstate commerce to the federal government specifically to prevent this kind of patchwork regulation.

An interstate — indeed, international — industry like pharmaceuticals would be handicapped by 50 different sets of rules, all subject to change during any legislative session. And the drug industry isn’t the only one affected. The need to comply with multiple layers of rules is rapidly becoming a regulatory nightmare for large and small businesses throughout the supply chain, ranging from packagers and shippers to hospitals, doctors and your neighborhood pharmacy.

Small and mid-sized players — including drug stores, physician offices and hospitals — are particularly vulnerable to burdensome compliance expenses. Many of these businesses already operate at extremely low margins, yet they will be increasingly forced to rack up huge expenses while navigating this dense thicket of tracking regulations. Research by the consulting firm Accenture shows, for instance, that the average small-sized pharmacy already pays out about $90,000 just to comply with existing rules. As the thicket of overlapping state regulations grows, that figure will climb far higher.

Fortunately, leading members of the Senate and House of Representatives have introduced a bipartisan proposal to shift oversight of the drug industry’s tracking programs away from the states and to the federal Food and Drug Administration. The proposals aren’t perfect because they put too much standard-setting authority in the hands of a regulatory process that, among other things, has been slow to adapt to technological advances.

The proposals do, however, include several positive measures intended to let the industry develop, test and implement innovative new solutions that stay several steps ahead of the counterfeiters while continuing to meet the needs of both small and large businesses throughout the drug supply chain. After all, what is state of the art today assuredly will not be in just a few years. Counterfeiters are bound to grow in technological sophistication. Pharmacies, hospitals, wholesalers and others must be given the freedom to evolve with them.

For any federal approach to work, however, the track and trace rules that FDA develops must pre-empt state law. Only then would the program remove uncertainty for drug manufacturers, distributors, wholesalers, pharmacists and physicians. A federal track and trace program would carry its own significant compliance costs. But a single national system would at least mitigate the even higher costs of meeting varying requirements in each individual state. A federal rule that leaves state regulatory regimes in place, on the other hand, would be a disaster — compounding the problem and putting both patients and tens of thousands of small businesses at risk.

Shuttered pharmacies and distributors that cannot bear the burden of compliance would leave Americans struggling to obtain their medications — as if being ill weren’t difficult enough. Our 50-state drug supply regulation system is not just obsolete — it’s irresponsible. So, a proposal to rein in the states while protecting innovation is just what the doctor ordered.

Conko is a senior fellow at the Competitive Enterprise Institute.