Transcript
Greg Corombos: Hi, I'm Greg Corombos. Thanks for being with us. Our guest in this edition of Expert Insights is Hans Howk. He's the Manager of Content Management at Wolters Kluwer. Today we want to get his insights into third-party logistics providers, especially as it relates to pharmaceutical companies. Now pharmaceutical companies rely heavily on third-party logistics providers as critical components of their supply chain. But there's a lot of important things to know if you're a third-party logistics provider. So today we're going to talk about the licensing requirements for those situations. And Hans, thanks very much for your time today. We always appreciate it.
Hans Howk: Thanks, Greg. It's good to be with you.
GC: Well, before we get to the licensing requirements, let's start at the very beginning, Hans. What exactly is a third-party logistics provider or sometimes known as a 3PL?
HH: A third-party logistics provider or 3PL. It's an entity that provides or coordinates warehousing or shipping or other logistics services on behalf of a pharmaceutical manufacturer or wholesale distributor or dispenser of a product. So, some services of 3PLs might include brokering the shipment of raw materials for drug manufacturing or maybe coordinating storage of the product or planning the transporting of pharmaceuticals or handling all the services. The important thing to note with regard to 3PLs is that a 3PL does not take ownership of any product. So, they're never touching it. They're never unpackaging it or repackaging it, they don't take ownership. They're really sort of the behind the scenes logistics coordinators as the name would imply.
GC: Okay, now we're ready to talk about what we were mentioning in the open. What are third-party logistics licensing requirements?
HH: So most states have some form of a third-party logistics license. Some states have specific license requirements that they simply call a third-party logistics provider license. For example, in Florida, third-party logistics providers must obtain a third-party logistics provider license from the division of drugs, devices and cosmetics. Other states, it's a little more nuanced, you might need to obtain a wholesale drug distributor license, which for whatever reason they consider to be the umbrella license for that third-party logistics provider service. Regardless, most states do have some sort of license requirement. And if you operate in multiple states, you're going to need to be licensed in each state in which you do operate, assuming the state does have a license. Now, as far as the licensing process itself, it can be pretty time consuming and complex. In some cases, you may be asked to provide samples of contracts, customer list names of the states in which you operate already, general liability insurance, a ton of other sort of documents that you might need to provide. For corporations, you might need to supply names and home addresses and birth dates for all the partners and officers and directors and major shareholders. Formation documents. There's a lot that goes into the application process for a third-party logistics provider, especially in the pharmaceutical industry, because it is so heavily regulated.
GC: Well, we talked about getting licensed. Now we need to know who's going to be enforcing the licensing, what licensing authorities apply to third-party logistics providers?
HH: So in general, it really depends on the nature of the product. Any number of regulatory bodies might oversee licensing for a logistics provider generally. So if you transport shipments that contain hazardous materials, you might need to, for instance, register with the federal hazardous materials safety registration program. If you are a freight forwarder and you move cargo via the sea or the air, you might need to obtain a federal indirect air carrier license or an ocean transportation intermediary license. But speaking strictly of pharmaceuticals, which we're talking about today, you're most likely going to be dealing with the FDA, as well as State Boards of Pharmacy, or their equivalent, like I mentioned for Florida.
GC: Well, compliance with all of these rules is certainly critical. And it's important to know the rules, especially when they change, which is the case with the Drug Supply Chain Security Act. So what's new there, and what do we need to know?
HH: Yeah, so for the most part, states have pretty much been handling, on their own, third-party logistics provider licensing, especially up until 2013, which…a lot of states didn't even have licenses for 3PLs before that. However, in 2013, the Drug Supply Chain Security Act was signed into law, and that's a federal law by the FDA. It essentially outlines requirements to develop and enhance the drug supply chain over the next 10 years beginning with 2013, obviously, culminating in 2023. So far, it's been doing this by requiring a lot of reporting of pharmaceutical entities. So, sales, shipments, dispensing of pharmaceutical products. All of these things are required to be reported by licensed entities on a periodic basis. You're also required to check in with the FDA periodically, and just…assure them that you are licensed in the appropriate state where you're doing business. But now, just recently, actually, in February 2022, the FDA announced a proposed rule. It's actually a swath of rules intended to provide greater assurance that states are regulating the drug supply chain in a strict and more uniform manner. So we're just now beginning to get details of what that's going to mean. But really, what it's looking like is a blanket sort of standardization. And it's at least, at first glance…it's going to have some regulation tightening effects on pharmaceutical entities, including third-party logistics providers. It's really a blanket standardization to make things more uniform across the board as far as licensing goes. It's still in comment period. We've seen some webinars from the FDA outlining the rules. So it's still sort of in flux. But again, it's looking like it's going to have a pretty big effect on licensing across the board, especially in states that aren't regulating very strictly at the current time.
GC: So Hans, what are the penalties then for licensure noncompliance?
HH: So as with a lot of highly regulated industries, a failure to comply with third-party logistics provider licensing requirements can result in heavy fines, cease and desist orders, the potential dissolution of your business altogether. Really any interruption in business is going to cost you money. So whether it's a fine or whether it's a suspended license, it's going to be a pretty big drain on your business. A state can even revoke your operating license, which would obviously lead to a loss of revenue. And also, you know, reputational damage, which we don't talk about a lot. But the damage to your reputation can be pretty severe. And a lot of folks don't know this, but Boards of Pharmacy actually publish quarterly newsletters, and a lot of times they will list folks who have gone astray of rules and regulations. So it's, you may think that you can keep it hush hush, but it actually is a publicly reportable sort of situation. So you really don't want to, again, run amiss of the licensing requirements.
GC: So much great information here, Hans. And I'm sure for our listeners, there's a lot to chew on there, whether they're brand new to this space, or whether they've been there a while. But as we wrap up here, what are some other things to keep in mind? And at the same time, what are some of the ways that CT Corporation can help everyone navigate this?
HH: Yeah, so managing compliance obligations, like you know, license renewals, changes of ownership, new licenses, when you move into new jurisdictions, updating licenses, things like that, it can be pretty overwhelming, especially if you're maintaining many licenses across multiple jurisdictions. And 3PL licenses specifically are notoriously strange, nuanced, and complex. They might not be called 3PL licenses. You might need a license even if you don't think you do. We definitely recommend letting a compliance partner like CT Corporation centralize and manage all of these processes for you so that you can run your business. The CT experts, they prepare and they submit your license applications for you. They handle the renewals and they really boil everything down into one invoice where you can sign on the X and be assured that your business is running in compliance with laws.
GC: Hans, once again, terrific information. Thanks very much for being with us today. Really appreciate your time and your expertise.
HH: It's always a pleasure, Greg.
GC: Thank you sir. Hans Howk is Manager of Content Management at Wolters Kluwer. I'm Greg Corombos reporting for Expert Insights. For more information on this topic, a CT Corporation business license specialist.
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