Out-of-state virtual manufacturers (virtuals) wishing to continue to do business in Maryland must be scratching their heads. Here’s why. Maryland is now a Verified Accredited Wholesale Distributor (VAWD) state. Effective Oct. 1, 2010, out-of-state wholesale distributors, located in states with requirements that are not “substantially equivalent” to Maryland’s, must be accredited by a board-recognized accreditation organization. According to the Code of Maryland Regulations (COMAR 10.34.22.01), a wholesale distributor is defined as “any person engaged in the wholesale distribution of prescription drugs or devices in Maryland.” Out-of-state virtual manufacturers clearly fall within the state’s broad definition. Consequently, these companies need to seek VAWD accreditation. There’s just one problem — the only Maryland Board of Pharmacy-recognized organization that does VAWD accreditation, the National Association of Boards of Pharmacy (NABP), will not accredit a virtual manufacturer.
This problem was brought to Life Science Leader’s attention by Jennifer Schneider, vice president of client services with State License Servicing (SLS) in Warwick, NY. SLS manages state licensing portfolios of multiple manufacturers and distributors of life sciences products. A certified paralegal, Schneider has worked in corporate law, pharmaceutical patents, and regulatory affairs for the past 22 years. In September 2010, she received a letter from the Maryland Board of Pharmacy announcing the amendment to Maryland’s Wholesale Distribution Permitting and Prescription Drug Integrity Act. In response, Schneider contacted the Maryland Board of Pharmacy, requesting clarification. In her letter to the Board of Pharmacy’s executive director, she makes reference to the state’s definition of a wholesale distributor. Further, Schneider points out that a virtual manufacturer is not eligible to become VAWD-accredited because they do not take physical possession of the drugs, a necessary criterion for NABP VAWD accreditation.
Ronald W. Buzzeo, RPh, agreed with Schneider with regard to virtuals and stated, “There’s no VAWD process for virtual manufacturers.” Buzzeo assisted the NABP with the development of the VAWD inspection program. A pharmacist by education, Buzzeo worked for the New York State Narcotic Bureau and the DEA before establishing his own company, which provided operational, regulatory, and outsourcing services for controlled substances, List I chemicals, Product Development and Management Association (PDMA) issues, VAWD, and state requirements, as well as assisting companies with obtaining and maintaining their state licenses. Buzzeo’s company was acquired by Cegedim, where he currently holds the position of chief compliance officer. I had the opportunity to interview both him and Schneider for this article.
What Is VAWD?
The process of getting a prescription drug from the manufacturer to your local drug store, hospital, or nursing home involves a complex distribution path. In 2004, the NABP established VAWD in an effort to provide state and federal regulatory agencies — as well as the public — a means to readily identify appropriately licensed wholesale distributors. This was implemented to help protect the U.S. public from counterfeit, contaminated, or diverted drugs. VAWD accreditation helps ensure the wholesale distribution facility operates legitimately, employing best practices for the safe distribution of prescription drugs.
VAWD is more than a “Good Housekeeping Seal of Approval.” According to Buzzeo, VAWD accreditation elevates your company in the “eyes of the state.” It shows that your company has met the most stringent requirements and established best practices of the industry. DDN, a provider of outsourced services to the life sciences industry, recently completed the VAWD renewal process. Janett Gray, vice president of regulatory and quality assurance with DDN, commented, “This renewal process was actually more extensive than the initial assessment, due in part to the increased activity and potential of counterfeit drug[s] entering the U.S. drug supply.”
To obtain VAWD accreditation, wholesale distributors undergo a criteria compliance review, including a rigorous review of their operating policies and procedures, licensure verification, surveys of facility and operations, background checks, and screening through the NABP Clearinghouse. The NABP Clearinghouse is a national database of educational, competence, licensure, and disciplinary information on pharmacists.
The fees involved in applying for VAWD accreditation start at a minimum of $5,675. This does not include the expenses involved in conducting two surveys. Add to this a company’s costs involved in collecting and organizing all of the necessary paperwork for the application, securing a surety bond, and paying annual participation fees (which range from $1,000 to $4,000), and you can see that VAWD accreditation is expensive as well as comprehensive. The accreditation process can also be lengthy, taking up to 12 months.
According to the NABP website, 22 states currently recognize VAWD accreditation. Many of these recognize VAWD as a means of implementing the licensing provisions of new laws, while mitigating the fiscal and operational impact on their board. Presently, only four states — Indiana, North Dakota, Wyoming, and now Maryland — require it as a component of licensure for wholesale distributors; however, only Maryland defines a virtual manufacturer as a wholesaler. Both Schneider and Buzzeo believe that it is rather unclear as to the actual number of states that do require VAWD. For example, South Carolina does not require VAWD for companies that are renewal applicants, but does require it for new applicants. According to Buzzeo, “Similar to Maryland, VAWD in Oregon is required if the state you’re located in doesn’t have an in-state inspection program. So, if you have an in-state inspection program, Oregon will accept it. So it comes down to, Oregon requires it, but doesn’t require it.” Not only is it unclear if Maryland is now requiring virtual manufacturers to become VAWD- accredited, it seems just as unclear as to whether or not nonvirtual wholesale drug and device distributors are required to seek VAWD accreditation in many states. One thing is clear — fines for conducting business without a permit in states that require them can be steep. In Maryland, it is punishable by a fine up to $500,000. According to Schneider, the question for many companies is “to VAWD or not to VAWD?” The question for virtuals operating in Maryland seems to be “how to VAWD?”
Many of Schneider’s clients are virtuals. “These are not small companies run by ex-salespeople who got their hands on a license, a labeler code, and are working out of their homes,” she said. “These are large companies. These companies are not actually touching the products, but they need to be licensed.” The market for these businesses, according to Buzzeo, is growing. There are plenty of large virtual companies in other industries founded on the same principles as virtual manufacturers. Amazon and eBay are just two examples.
A virtual manufacturer can conduct sales, recordkeeping, marketing, and general business activities out of a corporate office facility. Basically, any company that owns a new drug application (NDA), an abbreviated new drug application (ANDA), or has a license to a product, but never touches the product, and is not involved in the physical pedigree of the product would be considered a wholesale distributor in Maryland. Because they do not touch the product and are not involved in physical pedigree of the product, they are not able to be VAWD-accredited.
Wholesale distributors from states with “substantially equivalent” requirements to Maryland are exempt from VAWD accreditation if they can produce appropriate documentation, including an inspection report issued by that state’s board of pharmacy.
Both Buzzeo and Schneider agree that getting inspected is difficult, if not impossible, for virtuals. In many states, these companies are not inspected by their home state since they do not touch or store life sciences products. Additionally, many states have limited resources to inspect these types of facilities. However, if a virtual manufacturer is registered with the FDA, they are not given establishment status. Thus, they may never be inspected. Therefore, many of these companies will not be able to produce satisfactory documentation of a completed inspection when applying for a permit renewal.
Schneider believes that unless Maryland revises its definition of what it considers a “wholesale distributor” or the NABP develops a VAWD accreditation program to include virtual manufacturers, there is a large pool of virtuals in need of VAWD that can’t get it. As such, these companies at some point may not be able to do business in Maryland. Maryland currently is looking at applications on a case-by-case basis until such time as a program can be implemented or NABP introduces a VAWD program for virtual manufacturers. Buzzeo, on the other hand, thinks virtuals may still be able to distribute in Maryland, but would not be able to do any marketing in the state. For example, a virtual company could work with a VAWD-accredited company, such as one of the large retailers, or other distributors which actually handle product. The virtual would then market to the retailer in an area outside of Maryland, such as Chicago, and a distributor who handles the product would distribute directly to the retailer’s distribution centers. The retailer would then distribute the product from the virtual through their distribution centers into its stores in the state of Maryland.
Indiana was the first state to adopt VAWD as a requirement for licensure. This has reduced the number of licensees in the state from 1,013 in 2004 to 430 in 2010. According to the Indiana state website, there is no legal basis to be exempted out from the VAWD requirement. If you are physically shipping prescription drugs into or within the state, and you meet the definition of wholesale distributor, you must be licensed and obtain VAWD. However, unlike Maryland, Indiana exempts manufacturers from registration and companies from this process if they do not take physical possession of the prescription drugs. Since this is the case, one wonders if the Maryland Board of Pharmacy erred in listing Indiana as one of the states it considers as having requirements “substantially equivalent” to Maryland’s, since Indiana does not require VAWD for virtuals.
Schneider’s letter to the Maryland Board of Pharmacy did a good job pointing out some of the problems with VAWD. The board is attempting to address these. Pending revised policies, a determination was made that the Maryland Board of Pharmacy would accept the renewal applications of virtuals, allowing them to continue shipping.
VAWD Is Here To Stay
VAWD is not a cure-all for the challenges of wholesale drug distribution in the United States. One advantage it does have over the old system is that it puts the financial burden for being surveyed on the companies going through VAWD accreditation. Most states do not charge to conduct inspections. Given today’s economic situation, many states are seeking to cut costs, and thus, VAWD will play a bigger role.
At what point VAWD reachs a tipping point whereby all states adopt it as a means of licensure remains to be seen. Schneider believes some companies are holding off on getting VAWD accreditation until they are forced to. Perhaps the hope is that a universal e-pedigree drug tracking system might make it obsolete. When I asked Buzzeo if he thought VAWD and e-pedigree would coexist, he replied, “Yes, I see them coexisting.” Now, we just need to see what type of solution Maryland, as well as other states, puts into place to handle virtual manufacturers — as they are here to stay.