Can Regulation of Distribution of Pharmaceutical Products

Coexist with Advances in Information Technology

by

David L. Baumer, Julie B. Earp, and J.C. Poindexter[(]

Abstract: The ongoing progression of innovation in information technology (IT) and its internet application has created and continues to reinforce stresses in the efforts of government(s) to maintain regulation of the distribution of prescription drugs. Hence, there is a growing gap between what is technically feasible and commercially attractive on the one hand and what is legal in the distribution of pharmaceutical products on the other. With fast, user-friendly, and seemingly secure internet access to websites that offer prescription drugs, there is now a large and rapidly growing market niche in which patients, rather than medical professionals, can make medical decisions about the medications they ingest. Typically, the modus operandi of these websites is a cyber medical examination in the form of online questionnaire, where it is alleged that a physician examines the survey answers, nearly always resulting in follow-up sales of prescription drugs. The result, not surprisingly, is a very large and rapidly expanding “out-of-state” and “out-of-national-boundary” market (so-called “grey” or even “black” market) for pharmaceutical drugs. This problem is compounded by the existence of lucrative arbitrage opportunities that exist due to the wide differential between the “controlled” costs of drugs available in Canada and comparable drugs in the U.S.

Distribution of pharmaceutical products in the U.S. has traditionally been tightly regulated through state licensing laws of physicians and pharmacists. Although states continue to strive to strictly control prescription drug distribution, there is a growing parallel universe in which websites provide patients with largely unfettered choices for accessing prescriptions with minimal physician involvement. State licensing boards and the Food and Drug Administration (FDA) have raised legal obstacles to the growing volume of internet pharmacies. Remedies in the form of statutes are appearing at the federal level.

I. Introduction

The Internet has created significant challenges to enforcement of laws in a number of sectors.[1] Perhaps the most widely recognized challenge posed by the Internet to enforcement of a major branch of law is the opportunities that the Internet affords those willing to violate copyright laws.[2] Although copyright laws have been augmented by new legislation and court opinions that have led to shutdowns of companies whose business plans were based on violations of copyright laws, widespread illegal downloading of records, movies, and software continues.[3] Other areas of law whose enforcement have been undermined by the Internet include: the challenge to trademark law posed by domain names, privacy laws and identity theft, pornography laws, wagering laws, and several other less visible, but significant branches of law. To this list, another entry must be added: widespread and continuing violations of drug laws, mainly laws that regulate distribution of prescription drugs and controlled substances.[4]

Unlike many other Internet-facilitated crimes, violations of drug regulation laws can have serious and even fatal consequences. Explicit violations of drug distribution laws were highlighted in the book “Dangerous Doses”, which identified the introduction of “up-labeled” drugs and counterfeit products by secondary wholesalers in Florida.[5] This led to several near-deaths of cancer patients taking Epogen and other expensive drugs that were counterfeited, leading to pressure on the FDA to develop a formal pedigree requirement for drug distribution.[6] On the other hand, there are surprisingly few bona fide episodes of medical malpractice that begin with an order to an Internet pharmacy.[7] In the few cases involving Internet pharmacies that have gone to trial, several have been dismissed because of a failure of the plaintiffs to show that they were harmed in any way.[8]

Currently, enforcement of drug laws is being threatened by drug websites that openly offer paying customers prescription drugs without requiring prescriptions.[9] Of course websites are heterogeneous and there are degrees of illegality among websites.[10] Some are completely legal and comply with all relevant state and federal drug laws.[11] Others have a colorable claim of legality, though their procedures are sometimes contrary to the requirements of state licensing authorities and therefore federal law.[12] Grey market websites offer prescription drugs, and prescriptions for those in need, based on online questionnaires. Although many websites featuring drugs use online questionnaires as a fig leaf, black market drug websites dispense with online questionnaires entirely.[13]

The main contention advanced in this paper is that the Internet threatens the entire regulatory apparatus of drug regulation in the U.S. Although there were exceptions, at one time in the not too distant past, drug customers (patients) had to obtain a prescription from a physician, who often exercised considerable discretion over whether a person received the prescription.[14] Pharmaceutical companies now advertise direct to customers (DTC) and if their family physician does not agree with the patient, the Internet is a fall back option. For those unwilling to defer to their physicians, obtaining the drugs they want is as close as is their access to the Internet.[15] By simply typing in the name of the desired drug, Internet browsers are directed towards hundreds of websites offering their drug of choice. In recent articles legal scholars writing about drug regulation in the presence of the Internet make apocalyptical statements such as, “our current system of prescription drug regulation to protect the health of consumers may well breakdown…”[16]and “[M]aintaining the status quo is simply untenable. The current drug regulation regime has grown obsolete in light of the burgeoning online prescription drug industry, and does not reflect the reality of e-commerce.”[17]

In Part II of this paper, we state and examine laws that regulate distribution of drugs in the U.S. and show how Internet pharmacies that offer prescription drugs threaten the existing regulatory structure. Recently written law review articles are virtually unanimous in their dire predictions of the impact of internet technology on drug regulation. In Section III we review and discuss what recent polls reveal about the attitude of the U.S. public towards drug regulation. Although U.S. residents continue to voice (to survey staff) their support for the core principles of U.S. drug regulation, that support is tepid. Many are willing to trust their own medical judgments and ignore U.S. drug laws. In Section IV we look at various Congressional proposals. Although there are some state initiatives, the proposals with any realistic potential of regulating online drug sales are federal. In fact, many of the bills currently being examined at the Congressional level necessitate significant preemption of state laws. In Section V we discuss some realistic goals for regulation of prescription drug distribution in light of the availability of Canadian arbitrage and continued advances in information technology. Our conclusions appear in Section VI.

Section II. Government Regulation of Distribution of Pharmaceutical Drugs

In one sentence, without mentioning a lot of qualifiers, the foundation of U.S. regulation of prescription drugs is that medical professionals, not patients, should make the medical decisions as to what drugs are appropriate for patients.[18] Medical professionals, who are legally entitled to write prescriptions, are licensed by states, based on education, internships, and the results of competency tests.[19] Advances in information technology paved the way for creation of the Internet, which provides a forum for websites that offer drug patients the drugs they want without the intervention of medical professionals. Although two recent surveys suggest that the current number of online purchasers is small, less than 5 percent of the respondents in a telephone survey conducted by the Pew Foundation indicated that they had purchased drugs online from a website,[20] that number is growing and 63 percent of the drugs purchased online occurred at non-traditional websites.[21] In addition, lack of adherence by citizens to the basic principles of drug regulation is affecting politicians, as an increasing number of state Governors are facilitating arguably illegal reimportation of prescription drugs by price-conscious citizens of their states.[22]

Another basic objective of drug regulation is ensuring that patients receive what they order and are not victims of counterfeit or adulterated drugs.[23] Again, drug websites compromise this goal because tracking and tracing the origin of their inventory is impossible for purchasers, though there is a good deal of evidence that Food and Drug Administration (FDA) standards are not adhered to by many drug websites.[24] Since these drug websites are illegal according to U.S. law, their procurement, storage, and distribution practices are unregulated. There is no way that the FDA would certify the manufacture and storage of a drug that is being illegally distributed under state law. Ironically, in some respects, the Internet has brought back a situation similar to the fabled days of “Dr. Feelgood” and his mysterious elixirs, which were sold by day with great fanfare, but often followed by surreptitious night flights, leaving patients to fend for themselves.

A. State Licensure of Physicians and Pharmacists

Although the FDA is responsible for approving (or not approving) new drug applications (NDAs),[25] much of the regulation of distribution of pharmaceutical products has traditionally been based on state licensing laws.[26] In short, access to prescription drugs required a prescription written by a physician licensed in the state where he or she practiced medicine and dispensed by a state-licensed pharmacist. Armed with inherent police powers to protect citizens of their jurisdictions, states began licensing physicians and pharmacists in the 1870s as public dissatisfaction (interspersed with various outrageous anecdotes) about the negative consequences of quacks and price gouging became more evident.[27] As a result of state licensing statutes, those practicing medicine in a state had to obtain a license based on education, experience (internships) and competency as demonstrated by test performances. Similar criteria soon developed for pharmacists. Faced with common issues, state licensing boards formed national associations and federations. The National Association of Boards of Pharmacy, which represents pharmacists in all 50 states and several U.S. territories, is over 100 years old, while the Federation of State Medical Boards for physicians will celebrate its 94th annual meeting in August, 2006.[28]

Among regulatory schemes, regulating distribution of prescription drugs through state licensing of doctors and pharmacists is relatively old. In a number of other industries, state regulatory schemes have been abandoned after it became apparent that state regulation did little but disguise economic protectionism.[29] More recently online retailers have challenged state licensing requirements in the casket industry and wine sales with mixed results.[30] Although there are some splits among the Federal Circuits, the latest decision of the U.S. Supreme Court in Granholm v. Heald was that a Michigan state statute, which outlawed direct sales to Michigan residents by out-of-state wineries while permitting same for in-state wineries, was unconstitutional under the dormant Commerce Clause.[31] Also declared unconstitutional in the same case was a New York licensing scheme for wine sales. Although no state medical or pharmaceutical licensing statute has been successfully challenged under the Commerce Clause, the possibility of constitutional challenge has been raised by a number of recent commentators.[32]

Throughout the 20th Century, even before the Internet was a gleam in Al Gore’s eyes, increased mobility of doctors, pharmacists, and patients placed stress on state regulation of doctors and pharmacists through licensing laws. Fitfully, state licensing boards for doctors and pharmacists dealt with issues of reciprocity and nationally uniform standards, or national licensing. In the main, states have delegated licensing decisions to medical professionals. State licensing laws allow doctors and pharmacists to construct laws to protect the public from practices that threaten public health, but those laws could also be used to insulate the licensed professionals from competition from practitioners located in other states. There is abundant evidence that state licensing authorities are hostile to interstate practices of medicine for a variety of reasons.[33] Most commentators contend that state licensing authorities are anti-technology (technophobic), especially medical use of the Internet.[34] These commentators also contend that there is abundant evidence that licensing regulations have been used to insulate in-state practitioners from competition from out-of-state operations.[35] The contention that licensed professionals would use licensing authority to insulate themselves from competition is utterly predictable to most economists. Although the primary goal of state licensing statutes, protection of public health, was and is laudable, at least one recent commentator offered the opinion that, “Contemporary state licensure justifies local professional fiefdoms, perpetuates parochialism, and encourages anti-competitive protectionism.”[36]

Increased mobility affects not only medical professionals, but also patients. The traditional transaction that resulted in the writing of a prescription occurred when a doctor physically examined a patient, wrote the prescription, gave it to the patient who handed it to a pharmacist, who filled the prescription. On the other hand, exceptional circumstances sometimes occurred that made face-to-face examinations very inconvenient and inefficient. The practice of telephone-based prescriptions emerged (and was tolerated by state licensing authorities) if (1) the patient was in an existing doctor-patient relationship and (2) the physician agreed to “call in” the prescription without a new face-to-face encounter.[37]

At its core, state licensing of medical professionals is licensing based on geography, but the Internet fundamentally challenges laws that are based on geography. For many of who have examined the issue, the continuing rationale for state regulation of medical professionals through licensing boards is not evident.[38] By and large, medical knowledge, malpractice principles, and other aspects of the practice of medicine are not state specific. Most patients are unfamiliar with differences in state laws with regard to prescriptions that are ordered via telephone, are the result of a telemedicine consultation, or take place through online questionnaires. The rationale for differing legal protections based on state residency is not clear. On the other hand, the demise of state regulatory apparati in other industries through Commerce Clause challenges is not a new story.[39]

B. Telemedicine

Telemedicine is another example of overcoming geography through communications technology. When doctor and patient are physically separated, often the efficient solution is telemedicine. The Heritage Dictionary definition of telemedicine is:

The use of telecommunications technology to provide, enhance, or expedite health care services, as by accessing off-site databases, linking clinics or physicians’ offices to central hospitals, or transmitting x-ray or other diagnostic images for examination at another site.[40]