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Speech before

NACDS/HDMA RFID Healthcare Adoption Summit

Remarks by

Randall Lutter, Ph.D.
Associate Commissioner
Food and Drug Administration

November 14 , 2005

This text contains Dr. Lutter's prepared remarks. It should be used with the understanding that some material may have been added or deleted during actual delivery.

Introduction

• I am very pleased to have this opportunity to speak at the first, and hopefully not the last NACDS and HDMA Summit on the adoption of Radio Frequency Identification technology in health care.  We at FDA congratulate HDMA and NACDS for organizing this meeting and greatly appreciate your ongoing commitment and work to advance current and emerging technology and business solutions--such as RFID--to combat counterfeit drugs and thereby improve the integrity and safety of the U.S. drug supply.  
• RFID is more than just a means to control counterfeit drugs.  In the broader scheme it is a 21st century technology to ensure patient safety.  As makers, distributors, and dispensers of drug products, you have an obligation to maintain and guarantee the integrity of the drug products that you sell.  RFID can both help you to meet this obligation and help us ensure that all drugs are safe and effective.
• I am here to tell you that FDA shares your hopes about the promise that RFID brings for the distribution and delivery of health care products into the 21st Century.   We also share some of your concerns about the need for coordinated action to overcome obstacles in implementing this technology.  
• Dr. Andy von Eschenbach, our Acting Commissioner is engaged, knowledgeable, interested, and supportive of RFID. 
• Successful adoption of electronic track and trace technologies like RFID will require unusually high levels of cooperation among all stakeholders in the manufacture and distribution of medical products.  Meetings like this are essential to foster and cultivate the necessary cooperation. Without cooperation among stakeholders the full promise of RFID can not be realized.  While investments in some RFID technology may well make sense for some individual companies, the net benefits that all stakeholders will enjoy from RFID will be maximized only if independent organizations adopt common standards and compatible approaches.
• Today I would like first to discuss the policy problem that electronic track and trace technologies such as RFID can help solve, at least from the perspective of FDA.  Increasingly sophisticated counterfeit drug organizations have posed an increasing threat to the integrity of the drug supply in the U.S.  Lack of information in the drug distribution system is hindering efforts to ensure that each patient gets the right drug in the right amount at the right time. 
• Second, I would like to summarize for you the steps that FDA has taken recently to remedy this problem.  These include the February 2004 Report on Combating Counterfeit Drugs, and our efforts to encourage the voluntary adoption of RFID during the stay until December 2006, of the pedigree regulations issued under the Prescription Drug Marketing Act.   
• And finally, I will tell you what our plans are for helping drive adoption of an electronic pedigree and RFID and ensuring that Americans have the greatest possible assurance that their medications are safe and effective.
• But before proceeding, let me share with you a vision about how the distribution of medical products could occur in the near future, if we take the right steps today. 
  • We at FDA envision a world where devious would-be peddlers of diverted or fake medicines are thwarted and unable to sell to unsuspecting U.S. wholesalers, pharmacists and, most importantly, patients. 
  • We envision pharmacists at drug stores and hospitals being certain of the safety and efficacy of drugs they are dispensing, including their appropriateness for particular patients. 
  • This certainty comes not merely because the label conveys FDA approval but because an up-to-date electronic database confirms that the particular package contains the genuine authentic product--it was tracked at each stage of the distribution chain, from the FDA-approved manufacturing facility, to the dispensing pharmacist. 
  • Further, the electronic track and trace system that will provide this certainty, offers such savings to private firms that the benefits of greater certainty about safety and efficacy are realized without any untoward increase in the costs of medications at a retail level. 
  • This final point is important.  While fighting counterfeit drugs is a key part of FDA’s mission to ensure drug safety, we acknowledge important public concerns about the cost of medications and the implications of high costs for access to drugs.  Based on discussions with some drug companies and retailers, we believe that RFID can offer significant savings in the form of better inventory management to manufacturers, wholesalers and retailers alike.  Other savings would stem from reduction in theft and product loss, improved recalls, and reduction in paperwork burdens.  While desire for these cost savings is understandably the key motivation for your pursuit of RFID, our interests overlap.  Thoughtful adoption of RFID, while helping you financially, will also offer a lower cost way of ensuring authenticity of drugs thereby providing key support for our fight against diversion and counterfeiting. 
• Let me elaborate why implementing this vision is important to combating the problem of counterfeit drugs. 

The Counterfeit Drug Problem

• But before describing the counterfeit drug problem, let me make a general comment:  While we are here to discuss steps to improve the integrity of the U.S. drug supply it is important to note how good it already is.  Counterfeit drugs in the U.S. are quite rare. 
  • While we have no direct quantitative evidence about the prevalence of counterfeit drugs, because they so successfully mimic genuine products and by all accounts are rare, we are confident that the overwhelming majority of prescription drugs sold in the U.S. are products genuinely approved by FDA.
  • We believe counterfeit drugs represent significantly less than one percent of the total U.S. drug supply.
• The high confidence that we and the public have about the distribution system for U.S. drug products stems from an intricate web of federal and state laws.  These laws require drugs to be treated as potentially dangerous consumer goods that require regulations and oversight by health professionals in order to protect the public health.
• Despite this high confidence, FDA has been concerned that the drug supply is under increasing threat of attack from ever more sophisticated counterfeiters.   This disturbing trend is evident in the increased efforts to introduce counterfeit drugs into the U.S. market. 
• The Agency has witnessed an increase in counterfeiting activities and a greater capacity to introduce finished dosage form counterfeits into legitimate drug distribution channels.  Illicit wholesale drug diverters and others in the supply chain provide the window through which most counterfeit drugs have historically entered legitimate distribution channels.
• As you can see from Slide 1, the number of newly initiated counterfeit drug cases has risen sharply from just a few years ago,  although preliminary data from fiscal year 2005 suggest a decline relative to the peak reported for fiscal year 2004.  In fiscal year 2004, FDA's Office of Criminal Investigations (OCI) initiated 58 counterfeit drug cases, a significant increase from the 30 cases initiated in FY 2003.

D

• Let me stress that these are estimates of the number of newly initiated counterfeit drug cases being investigated.  Since these are ongoing cases, we have no estimate of the volume of counterfeit drugs involved in each case--it could vary from dozens to thousands.
• We believe that the unusually high number of cases in FY2003 is in part due to an increased awareness and vigilance at all levels of the drug distribution chain.  One factor contributing to this increased awareness and vigilance is the Counterfeit Drug Report that FDA issued in February 2004.  A second is increased referrals from, and coordination with other state and federal law-enforcement agencies, and communications with drug manufacturers.  
• The decline from 58 cases in 2004 to 32 new cases in 2005 may be due partly to a positive deterrent effect of the new 2004 cases on the level of counterfeiting in 2005.  But the decline may also exist because some new cases, after further research, are found to relate to the large number of existing ones.   In reality we can not identify the exact causes of changes in the number of new counterfeit drug cases opened each year.
• Fortunately, most of the counterfeit drugs at issue did not reach consumers because we focused our resources and developed proactive investigations.  We believe that this strategy enabled us to identify components of counterfeit products and interdict finished counterfeit drug products before they entered retail distribution.
• It is important to note that the number of cases that OCI has opened is NOT an indication of the prevalence of drug counterfeiting in the U.S.  Almost 4 billion prescriptions were filled last year.  That means a very large volume of drugs is moving through the supply chain.  The sophistication and precision of counterfeit copies make a reliable estimate of the number impossible.  However, we believe that existing regulations and the commitments by most supply chain stakeholders to comply with these rules, keep very low the prevalence of drug counterfeiting in the U.S.
• Unfortunately, not everyone abides by the rules.  Counterfeit, stolen, and otherwise fraudulently obtained pharmaceutical drugs can enter legitimate channels through pre-existing illicit diversion networks.   OCI’s enforcement efforts targeting these diverters also have resulted in detection and dismantling of counterfeit schemes.   Without the intimate knowledge of diversion borne of extensive investigative experience it would be difficult, if not impossible, to effectively combat pharmaceutical counterfeiting. 
• Counterfeit drugs in other countries are a much bigger threat than in the U.S.  Strong enforcement efforts are the key to keeping counterfeits off the U.S. market.  

FDA’s Recent Activities

• FDA has tried to implement the Prescription Drug Marketing Act while encouraging the voluntary adoption of anti-counterfeiting technologies and practices.  
• For those of you who are not familiar with PDMA, the Prescription Drug Marketing Act is a law passed in 1987 in response to a number of counterfeit drug incidents in the U.S. where patients received counterfeit drugs. 
• PDMA requires State licensing of wholesale distributors of prescription drugs and requires unauthorized wholesale distributors to provide purchasers a statement (also called a pedigree) identifying each prior sale of the drug.  FDA issued final regulations implementing the PDMA in 1999. 
• Shortly thereafter, the agency received comments raising a number of concerns related to the pedigree provisions.  Many of the concerns suggested that there would be an adverse economic impact on wholesalers who have to provide pedigrees.  Comments noted the high costs of using paper pedigrees--the best technology then available—and the inability of wholesalers would be unable to get complete pedigrees from sellers, even for legitimate transactions.  As a result, FDA stayed certain provisions of the final rule, and has continued to stay these provisions.  The current stay, which expires in December 2006, was issued in part to give stakeholders time to implement an electronic track and trace technology solution.
• Our statements to stakeholders in the February 2004 report were
  • Adoption and common use of reliable track and trace technology would be feasible in 2007, and would help secure the integrity of the drug supply chain by providing an accurate drug “pedigree”.
  • RFID is the most promising approach to provide reliable and timely track and trace information.
  • Adoption of electronic track and trace technology would help stakeholders meet and surpass the goals of PDMA.
• Since February 2004 we have engaged in a variety of efforts to cultivate RFID implementation/adoption.
  • We are working closely with individual companies and supply chain partnerships who are implementing or piloting RFID, including several companies that are here today.
  • EPCglobal has kindly welcomed FDA to meetings of its Health and Life Sciences Business Action Group, where much of the standard setting work is being done.  We are pleased by the progress that they are making in this area.
  • We have led an FDA RFID working group, in which all FDA centers are represented, information is shared within the agency, and consistent approaches are identified and pursued.
  • We have also served on an inter-governmental RFID Council, coordinated by the Department of Defense.  We participate in 4 sub-working groups on this panel, including privacy, standards, technology and policy.
• In our February 2004 report, we took an essentially voluntary approach toward widespread adoption of electronic track and trace. Supply chain stakeholders assured us that there would be considerable movement toward implementation of RFID and that widespread adoption could be done in 2007.  We believed at that time regulatory intervention might stifle innovation and progress in adopting this emerging technology.  Yet from our vantage point today, it appears a voluntary approach may not be enough.
• In an annual update in May of this year we said that “stakeholders have made tremendous progress in the development and implementation of EPC/RFID [(electronic product code for unit serialization)].  This is a huge endeavor that requires close collaboration among all constituents of the pharmaceutical distribution system. ”
  • We also said that “we are pleased with the progress stakeholders, standard setting bodies, and software and hardware companies have made thus far toward implementing an electronic pedigree for drug products.  We realize that there have been, and continue to be, challenges along the way.  However, we are optimistic that this progress will continue in an expeditious manner toward meeting our 2007 goal.  If it appears that his goal will not be met, we plan to consider the options regarding implementation of the PDMA provisions that are the subject of the stay.” 
• At this point we have become concerned about the slow or inadequate progress implementing an electronic pedigree. We are concerned that widespread adoption may not be realized by December 2006, when the PDMA stay expires.  

Next Steps

• Let me turn now to our plans to renew and reinvigorate our support for RFID so as to accelerate its adoption.  
• First, FDA, given its responsibilities for drug safety, must ensure that radio-frequency exposure does not impact the quality, safety, or efficacy of drug and biologic products.
• We asked stakeholders to share data and information regarding the effects of RF on drug and biologic products.  We haven’t received significant amount of data to date. 
• We believe, based on preliminary information and hypothesis, that RF does not have a significant thermal effect on solid dosage forms. 
• An FDA CDRH lab has done some preliminary research looking at the heating effect of 915 MHz RFID fields on a placebo, simulating a pharmaceutical.  The research showed a very modest rise in temperature, of unknown significance. 
• This small bit of information shows that we are just beginning to know the impact of RF on certain products.  This has given us the impetus to develop and conduct our own studies to determine the impact of RF on a range of products.
• We are developing protocols for further research, but we intend to look at RF effects on various types of drug, biologics, and various types of packaging materials under a variety of conditions.  Effects we will consider will include
• Thermal effects (the impact of heat), and
• Non-thermal effects (the impact on molecular bonds).
• We expect to share the results in spring or summer 2006.
• Second, I am pleased to announce here that the FDA Counterfeit Drug Task Force is going to hold a Public Workshop in January or February 2006.
• The new chairpersons of the Task Force are Maggie Glavin, Associate Commissioner for Regulatory Affairs and me. The purpose of the meeting is to  --
• Facilitate RFID standard-setting and coordination of issues,
• Discuss PDMA/pedigree issues related to the stay, and
• Reaffirm our commitment to facilitate and drive adoption of electronic track/trace technology.
• Our general interest is in identifying the current barriers to adoption and finding ways these barriers can be overcome.  We haven’t yet set the agenda, but I can sketch here some issues that we’ve heard merit further public discussion.  These include:
• What type of number should be used as the unique identifier:   the embedded NDC number or a randomly generated number to protect privacy and mask product identity; 
• Should all of the transaction information be stored and accessible at a single central database or a distributed network of information.  Does it really matter if it’s one or the other?
• What common fields/information should be included in an electronic pedigree?
• What incentives are needed for more rapid and widespread adoption?
• What can FDA do to further facilitate/drive adoption across the supply chain?
• In the coming weeks, we will put out an invitation for people to testify on these and other issues and we expect to publish more information about this meeting in the near future both in the Federal Register and posted on FDA’s website.
• We have been advocating the adoption and widespread use of electronic track and trace technologies for almost 2 years now.  We know that many of you have been involved in exploring RFID technology for significantly longer than that.  With our February 2004 report, we gave this technology a big push for use in the pharma sector.   Let me be clear that this continues to be an Agency priority and we are prepared to give this another big push to keep the momentum moving quickly. 
• I believe that the steps that I have shared with you today—the public workshop and any follow up from that and the RFID research that we will be conducting, as well as our continued interactions and discussions with you and your companies, demonstrate our commitment to push this forward.
• We want this to succeed and we continue to believe that widespread adoption is feasible in the very near future

Thanks again for giving me this opportunity to speak.  I have a few minutes for questions.

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