Impact Analysis

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration

National Standards for the Licensure of Wholesale
Drug Distributors and Third-Party Logistics
Providers
Docket No. FDA-2020-N-1663

Preliminary Regulatory Impact Analysis
Initial Regulatory Flexibility Analysis
Unfunded Mandates Reform Act Analysis

Economics Staff
Office of Economics and Analysis
Office of Policy, Legislation, and International Affairs
Office of the Commissioner

Table of Contents
Introduction and Summary ..................................................................................................... 6

I.
A.

Introduction ...................................................................................................................... 6

B.

Summary of Costs and Benefits ....................................................................................... 6

C.

Definitions ........................................................................................................................ 8

II.

Preliminary Regulatory Impact Analysis ................................................................................ 9
A.

Background ...................................................................................................................... 9

B.

Need for Federal Regulatory Action .............................................................................. 10

C.

Purpose of the Proposed Rule ........................................................................................ 10
1.

D.

Effective Dates and Discounting ................................................................................ 11
Baseline Conditions........................................................................................................ 12

1.

Number of WDD and 3PL Facilities .......................................................................... 12

2.

Baseline Practices at WDD and 3PL Facilities .......................................................... 12

3.

The Cost of Labor ....................................................................................................... 13

E.

Benefits of the Proposed Rule ........................................................................................ 14
1.

Benefits ....................................................................................................................... 14

2.

Cost Savings from Reduction in Frequency of Licensure Application ...................... 16

3.

Cost Savings from Fewer Ship-To Licenses for 3PLs Licensed by FDA .................. 18

4.

Cost Savings from State Standards Not Included in the Proposed Rule .................... 20

5.

Cost Savings to States from Fewer State Licenses ..................................................... 22

6.

Additional Benefits and Cost Savings ........................................................................ 23

7.

Summary of Benefits .................................................................................................. 23

F. Costs of the Proposed Rule ................................................................................................ 24
1.

Costs for WDDs, 3PLs, and States to Read and Understand the Rule ....................... 24

2.

Reporting Costs .......................................................................................................... 25

3.

Costs from Increased Frequency of Licensure Application ....................................... 25

4.

Cost of New Standards for WDDs and 3PLs ............................................................. 26

5.

Cost of Routine Inspections ........................................................................................ 30

6.

Approved Organization Approval Costs .................................................................... 33

7.

State Costs to Establish or Revise Licensure Programs ............................................. 34

8.

FDA Costs .................................................................................................................. 35

9.

Summary of Costs ...................................................................................................... 38

G.

Distributional Effects ..................................................................................................... 39

H.

International Effects ....................................................................................................... 39

I.

Uncertainty and Sensitivity Analysis ................................................................................. 40
2

J.

III.

1.

Exercising Additional Enforcement Discretion .......................................................... 40

2.

Requiring Drug Testing .............................................................................................. 41

3.

Creating a Minimum Standard of Licensure .............................................................. 41

4.

Summary of Regulatory Alternatives ......................................................................... 42

Initial Small Entity Analysis .............................................................................................. 42

A.

Description and Number of Affected Small Entities ..................................................... 42

B.

Description of the Potential Impacts of the Rule on Small Entities ............................... 43

C.

Alternatives to Minimize the Burden on Small Entities ................................................ 45

IV.

V.

Analysis of Regulatory Alternatives to the Proposed Rule ............................................... 40

Appendix: Adverse Events from Drug Diversion or Counterfeiting ................................. 45

A.

Evidence from Suspected Cases of Drug Diversion or Counterfeiting .......................... 45

B.

Evidence from Documented Cases of Drug Diversion or Counterfeiting ..................... 46
References ............................................................................................................................. 48

3

List of Tables
Table 1. Summary of Benefits, Costs, and Distributional Effects of the Proposed Rule ............... 7
Table 2. Definitions of Terms and Abbreviations Used in this Analysis ....................................... 8
Table 3. Summary of New Standards for WDDs and 3PLs ......................................................... 11
Table 4. Total Number of WDD and 3PL Facilities by Employee Size ....................................... 12
Table 5. Number of WDD Facilities Licensed in States that Do Not Require Criminal
Background Checks, Routine Inspections, or Surety Bonds ........................................................ 13
Table 6. Number of 3PL Facilities Licensed in States that Do Not Require Criminal Background
Checks or Routine Inspections...................................................................................................... 13
Table 7. Labor Cost Values Used in This Analysis ...................................................................... 14
Table 8. Annual Cost Savings for WDDs from Reduced Frequency of Licensure ...................... 17
Table 9. Annual Cost Savings for 3PLs from Reduced Frequency of Licensure ......................... 18
Table 10. States without Compliant Licensure Programs over Time ........................................... 19
Table 11. Facilities Licensed by FDA over Time ......................................................................... 19
Table 12. Average Annual Cost Savings for 3PLs Licensed by FDA .......................................... 20
Table 13. Annual Cost of Self-Assessments in California and Oregon ........................................ 21
Table 14. Additional Examples of State Standards for Licensure that are Not Included in the
Proposed Rule and Would Result in Cost Savings to Industry ..................................................... 22
Table 15. Cost Savings to States from Fewer WDD and 3PL Licenses over Time ($ millions) .. 22
Table 16. Stream of Benefits from the Proposed Rule over 10 Years ($ millions) ...................... 23
Table 17. Discounted Total Benefits of the Proposed Rule over 10 Years ($ millions)............... 24
Table 18. Number of Employees Reading the Rule and Average Hourly Labor Costs ............... 24
Table 19. Annual Costs for WDDs from Increased Frequency of Licensure ............................... 26
Table 20. Number of Employees Requiring Criminal Background Checks under the Proposed
Rule ............................................................................................................................................... 27
Table 21. Estimated Time to Establish SOPs per Facility (Hours)............................................... 28
Table 22. Estimated Annual Time to Revise SOPs per Facility (Hours)...................................... 29
Table 23. Number of Hours Spent Participating in Inspections by WDDs and 3PLs .................. 31
Table 24. Number of Hours Spent Conducting Inspections by States and AOs........................... 32
Table 25. Annual Approval Costs for Approved Organizations over Time ($ millions) ............. 33
Table 26. Number of States Acting on WDD and 3PL Legislation and Regulations by Year ..... 34
Table 27. Time Cost to FDA per License Application ................................................................. 36
Table 28. Additional Costs to FDA Associated with the Licensure Program ($ millions) .......... 37
Table 29. Costs to FDA of Training and Outreach over Time ($ millions).................................. 38
Table 30. Stream of Costs from the Proposed Rule over 10 Years ($ millions)........................... 38
Table 31. Discounted Total Costs of the Proposed Rule over 10 Years ($ millions) ................... 39
Table 32. Number of Facilities with New Drug Testing Standards under the Regulatory
Alternatives and the Number of Drug Tests Conducted ............................................................... 41
Table 33. Summary of Annualized Benefits and Costs of Alternatives to the Proposed Rule ($
millions) ........................................................................................................................................ 42
Table 34. Description of Small WDD Firms ................................................................................ 43
Table 35. Description of Small 3PL Firms ................................................................................... 43
Table 36. Annualized Cost Savings, Costs, and Distributional Effects of the Proposed Rule for
WDDs ($ millions)........................................................................................................................ 44
Table 37. Annualized Net Costs per Firm as a Percent of Average Annual Revenue for Small
WDD Businesses .......................................................................................................................... 44

4

Table 38. Annualized Cost Savings, Costs, and Distributional Effects of the Proposed Rule for
3PLs ($ millions)........................................................................................................................... 44
Table 39. Annualized Net Costs per Firm as a Percent of Average Annual Revenue for Small
3PL Businesses ............................................................................................................................. 45
Table 40. Suspected Adverse Events from Drug Diversion or Counterfeiting............................. 46
Table 41. Notable Cases of Drug Diversion or Counterfeiting Resulting in Adverse Events ...... 47
Table 42. Other Notable Cases of Drug Diversion or Counterfeiting .......................................... 47

5

I.

Introduction and Summary
A. Introduction

We have examined the impacts of the proposed rule under Executive Order 12866,
Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct us to
assess all costs and benefits of available regulatory alternatives and, when regulation is
necessary, to select regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other advantages; distributive impacts;
and equity). We believe that this proposed rule is a significant regulatory action as defined by
Executive Order 12866.
The Regulatory Flexibility Act requires us to analyze regulatory options that would
minimize any significant impact of a rule on small entities. Because the proposed rule could
impose significant, although uncertain, new economic burdens on small entities, we find that the
proposed rule will have a significant economic impact on a substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a
written statement, which includes an assessment of anticipated costs and benefits, before
proposing “any rule that includes any Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or
more (adjusted annually for inflation) in any one year.” The current threshold after adjustment
for inflation is $158 million, using the most current (2020) Implicit Price Deflator for the Gross
Domestic Product. This proposed rule would not result in an expenditure in any year that meets
or exceeds this amount.
B. Summary of Costs and Benefits
In this rulemaking, we propose new national standards for the licensing of prescription
drug wholesale distributors (WDDs) and third-party logistics providers (3PLs) as directed under
the Drug Supply Chain Security Act (DSCSA), Title II of the Drug Quality and Security Act. If
finalized, the rule would also establish a federal licensing system for wholesale drug distributors
and third-party logistics providers to use in the absence of a state licensure program that is
consistent with the proposed national standards.
We summarize the benefits and costs of the proposed rule in Table 1. The standards for
prescription drug wholesale distribution in the proposed rule would result in public health
benefits to consumers and benefits to distributors from reducing the diversion of prescription
drugs. Other monetized benefits include cost savings from reducing the frequency and quantity
of licensure applications and cost savings from reducing state licensing standards in some states.
We estimate that the annualized benefits over 10 years would range from $1.25 million to $31.50
million at a 7 percent discount rate, with a primary estimate of $10.66 million. We estimate that
the annualized benefits would range from $1.26 million to $32.18 million at a 3 percent discount
rate, with a primary estimate of $10.89 million.
We also expect that the proposed rule, if finalized, would impose costs on wholesale drug
distributors, third-party logistics providers, states, approved organizations, and the Food and
Drug Administration (FDA). Costs to wholesale drug distributors and third-party logistics
6

providers include costs of learning about the rule, reporting to FDA, undergoing routine
inspections, writing and revising standard operating procedures, and conducting background
checks. Wholesale-drug distributors would also incur costs to furnish surety bonds to their state
licensing authority to obtain or renew their licenses.
Costs to states include the time spent reading and understanding the rule, passing or
revising the laws and regulations governing their licensure programs, and inspecting WDD and
3PL facilities. Approved organizations would incur legal, application, and training costs, as well
as costs to inspect WDD and 3PL facilities. FDA costs include the costs to establish and operate
a reporting database and a licensure program for wholesale drug distributors and third-party
logistics providers and the costs to establish and operate an approval program for approved
organizations.
As states reduce their frequency of licensure, licensure fees would transfer from states to
WDD and 3PL facilities. Furthermore, to the extent that FDA would license facilities in certain
states, licensure fees would transfer from states to FDA. We intend to publish this rulemaking in
conjunction with the proposed rule entitled “Certain Requirements Regarding Prescription Drug
Marketing; Proposed Rule” (or Part 203). We include the benefits and costs of Part 203 in this
economic analysis.
We estimate that the annualized costs over 10 years would range from $13.21 million to
$20.63 million at a 7 percent discount rate, with a primary estimate of $16.92 million. We
estimate that the annualized costs over 10 years at a 3 percent discount rate would range from
$12.83 million to $20.10 million, with a primary estimate of $16.47 million.
Table 1. Summary of Benefits, Costs, and Distributional Effects of the Proposed Rule
Category

Benefits

Annualized
Monetized ($
millions/year)

Year
Dollars

Units
Discount
Rate

Period
Covered

Notes

$31.50

2020

7%

10 years

$1.26

$32.18

2020

3%

10 years

There is a
high degree
of uncertainty
in the
magnitude of
benefits.

$16.92

$13.21

$20.63

2020

7%

10 years

$16.47

$12.83

$20.10

2020

3%

10 years

$0.12
$0.09
$0.11
$0.08
From: States

$0.14
$0.14

7%
3%

10 years
10 years

Primary
Estimate

Low
Estimate

High
Estimate

$10.66

$1.25

$10.89

Qualitative

Costs

Transfers

Annualized
Monetized ($
millions/year)
Qualitative
Federal
Annualized
Monetized ($
millions/year)
Other
Annualized
Monetized ($
millions/year)

From:

2020
2020
To: Firms

To:

7

Category

Effects

Units
Year
Discount
Period
Dollars
Rate
Covered
State, Local, or Tribal Government: Annualized net costs to states over 10 years
ranging from $0.62 million to $1.44 million at a 7 percent discount and from $0.58
million to $1.38 million at a 3 percent discount rate.
Small Business: Quantified effects of more than 1 percent of average annual
revenues for small 3PL firms. Unquantified effects are uncertain.
Wages: No estimated effect.
Growth: No estimated effect.
Primary
Estimate

Low
Estimate

High
Estimate

Notes

C. Definitions
In Table 2, we provide definitions for several terms we use in this document. These
definitions only apply to this document and not to the content of the proposed rule. For
definitions applicable to the proposed rule, please refer to section 581 of the Federal Food, Drug,
and Cosmetic Act and the proposed rule.
Table 2. Definitions of Terms and Abbreviations Used in this Analysis
Term
We, us, our
Wholesale Drug
Distributor

Third-Party Logistics
Provider

Drug Supply Chain
Security Act
Prescription Drug
Marketing Act

States
Designated
Representative
Facility

Approved
Organization

Abbreviation Definition
We use these terms to refer to the FDA.
Entities that warehouse prescription drug products and take
WDD
ownership of those products. We use this term to refer to
domestic facilities only.
Entities that warehouse prescription drug products on behalf
of a manufacturer. 3PLs do not take ownership of the
products. We use this term to refer to domestic facilities only.
3PL
DSCSA established the term “third party of logistics
provider” or “3PL”, but for convenience we refer to 3PL
entities, including those existing before DSCSA, as 3PLs.
A law passed in 2013 that required us to establish national
DSCSA
standards for the licensure of WDDs and 3PLs and required
WDDs and 3PLs to report certain information to FDA.
Pre-DSCSA law passed in 1987 on prescription drug
PDMA
distribution that required WDDs to obtain licenses from
states.
We use this term to refer to any jurisdiction impacted by this
proposed rule. These jurisdictions include all 50 states, the
District of Columbia, Puerto Rico, Guam, and other U.S.
territories.
A representative of the facility manager who is responsible for
managing the daily operations of a WDD or 3PL facility.
The permanent, physical location used for warehousing of
prescription drug products, distribution of prescription drug
products, or both warehousing and distribution of prescription
drug products.
Entity approved by FDA that may review a facility’s
AO
qualifications for licensure and may conduct facility
inspections.

8

Term
Criminal Background
Check
Surety Bond
Standard Operating
Procedure
In-State License
Ship-To License

Abbreviation Definition
A search for and compilation of criminal records of an
employee or prospective employee.
A contract between a facility and a surety company
guaranteeing a payment of any administrative fines or
penalties imposed on a facility.
A written procedure that a firm or facility maintains and
SOP
follows.
A license obtained by a WDD or 3PL in the state in which the
facility is located.
A licensed obtained by a WDD or 3PL in states in which the
facility is not located, but that the WDD or 3PL ships to.

II.

Preliminary Regulatory Impact Analysis
A. Background

WDDs and 3PLs are the primary entities that move prescription drugs in the supply chain
at the wholesale level in the United States. WDDs receive products from drug manufacturers and
distribute them to dispensers. 3PLs receive products from drug manufacturers and provide
warehousing and logistics services on behalf of trading partners. WDDs purchase and take
ownership of the products that they distribute, while 3PLs provide warehousing and logistics
services without taking ownership of the products that they warehouse.
One of the challenges of prescription drug distribution is keeping illegitimate products
out of the legitimate supply chain. Such illegitimate products include, among other things,
counterfeit drugs, drugs manufactured outside the legitimate U.S. supply chain and diverted or
transferred into the legitimate supply chain through an illicit channel during distribution, as well
as drugs that may have originated in the legitimate U.S. supply chain but that may have been
diverted or transferred outside that supply chain before reentry. Drug diversion may result in
contamination, deterioration, or mislabeling of the prescription drug. Counterfeit products may
contain unsafe ingredients or may be ineffective. Consequently, drug diversion and
counterfeiting may increase a patient’s risk of receiving an ineffective, unsafe, or incorrect drug.
Diverted or counterfeit drugs pose a serious public health issue (Ref. [1]). Patients may not
receive life-saving treatment if a diverted or counterfeit drug is ineffective. Patients may also
suffer adverse events from unsafe drugs. Because these diverted or counterfeit drugs enter the
supply chain unlawfully and their origin may be unknown, consumers may purchase and use a
diverted or counterfeit drug product believing that it is a legitimate drug product.
Another challenge in prescription drug distribution is ensuring that products remain safe
and effective. Proper storage, transportation, and equipment maintenance can prevent drug
deterioration or contamination. To address these issues, the PDMA of 1987 required WDDs to
implement certain minimum wholesaling standards. When states adopted these standards for
WDDs, some states also imposed standards on 3PLs.1

1

While states imposed standards on the entities we refer to as “3PLs”, they did not use that term.

9

Since the passage of PDMA, drug diversion and counterfeiting have persisted. Some
states have implemented stricter standards, while other states continue to require only the
minimum national standards under PDMA. Drug diverters and counterfeiters can often more
easily infiltrate the supply chain by operating in states with the weakest standards for drug
distributors. Rigorous national standards for WDDs and 3PLs can reduce this opportunity for
drug diversion and counterfeiting.
B. Need for Federal Regulatory Action
Private markets may fail to provide the socially optimal level of security in the
prescription drug supply chain. WDDs and 3PLs can reduce the likelihood of drug diversion and
counterfeiting by investing in facility security and using good storage practices. WDDs and 3PLs
benefit privately from storing prescription drugs with care, as it protects them against theft and
spoilage of drugs. WDDs and 3PLs would have adequate incentive to invest in the security of the
supply chain if the marginal cost of mitigation were less than the marginal private benefit.
However, because WDDs and 3PLs do not face the same risks of drug diversion and
counterfeiting as consumers, they may invest less than the socially optimal amount needed to
adequately protect the supply chain. As a result of this potential underinvestment, consumers
face greater risk of purchasing diverted drugs than they would with socially optimal investment.
Consumers can also suffer losses from drug diversion and counterfeiting. Consumers who
unknowingly purchase diverted or counterfeit drugs through the legitimate supply chain believe
that they are purchasing legitimate drugs. The price they pay reflects their willingness to pay2 for
a legitimate drug when they have received a diverted or counterfeit drug that they value much
less. Consumers’ willingness-to-pay for a legitimate drug likely captures expectations that a drug
is safe, effective, and manufactured and distributed in accordance with all applicable laws and
regulations.
It is difficult for consumers to coordinate and compensate WDDs and 3PLs for their
efforts to protect against diversion. It is costly for consumers to try to avoid diverted drugs by
verifying the security of the supply chain or the authenticity of drugs they purchase. Therefore, it
is unlikely consumers could demand an optimal amount of security in the drug supply chain
through market mechanisms. Additionally, consumers may not suspect drug diversion or
counterfeiting if they suffer an adverse outcome because of a diverted or counterfeit drug and
may instead incorrectly attribute the adverse outcome to other factors.
Regulation of WDDs and 3PLs varies across states, and drug diverters and counterfeiters
may operate in states with weaker oversight. By creating rigorous national standards for WDD
and 3PL licensure, this proposed rule, if finalized, would support a minimum level of supply
chain security that may reduce the social costs associated with drug diversion and counterfeiting.
C. Purpose of the Proposed Rule
As required by statute, the proposed rule, if finalized, would create national standards for
licensure of WDDs and 3PLs. We expect that harmonizing standards would improve product
safety and efficacy by helping to minimize risks that arise in the supply chain. The rule would
Per HHS guidelines for regulatory impact analysis, willingness-to-pay is the “maximum amount of money an
individual would voluntarily exchange” for a good or service, “given his or her budget constraints” (Ref. [27]).
2

10

also streamline compliance for drug distributors by standardizing state standards. To establish
uniform standards, the rule proposes stronger national licensing standards for WDDs and 3PLs
than the PDMA. We summarize the new standards in Table 3.
Table 3. Summary of New Standards for WDDs and 3PLs
Standard
Criminal Background
Checks
Fingerprinting

Routine Facility
Inspections
SOPs for Equipment
Maintenance,
Personnel, and
Transportation
SOPs for Authorized
Trading Partners

Furnish Bond
a

b

Description

Applies Applies
to
to
WDDs? 3PLs?

a

All designated representatives and facility managers
must pass criminal background checks.
All designated representatives and facility managers
must undergo a criminal background check involving
fingerprinting.
Facilities must undergo routine inspections at least once
every 3 years. If available, state licensing authorities or
AOs would conduct these inspections. Otherwise, we
would conduct inspections.
Facilities must establish, maintain, and follow written
procedures for equipment maintenance, personnel
qualifications, and safe transportation of products.
Facilities must establish, maintain, and follow written
procedures to ensure they only engage in activities on
behalf of authorized trading partners.
Firms with annual revenue greater than $10 million must
furnish a bond of $100,000 or other equivalent means of
security acceptable to the state. Firms with annual
revenue less than or equal to $10 million must furnish a
bond of $25,000.

Yes

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Nob

Yes

No

The preamble to this proposed rule discusses these standards in more detail.
Proposed “best practice” not but a requirement.

Either state or federal licensing authorities would enforce WDD and 3PL compliance
with the above standards. States with licensure standards that conform to the standards in the
proposed rule could continue to license and regulate WDDs and could establish separate
programs to license and regulate 3PLs. Absent a state licensing program, we would establish a
licensing program for facilities located in that state.
1. Effective Dates and Discounting
The DSCSA specifies that the effective date of the 3PL licensure standards is one year
after we issue the final regulations and that the effective date of the WDD licensure standards is
two years after the final regulation issues. However, as described in the proposed rule, we do not
intend to enforce the national standards for licensure of 3PLs until 2 years after we issue the final
regulations. Throughout our analysis, we use “year 1” to represent the year in which we would
begin to enforce the national standards for licensure. Therefore, “year 1” refers to the 12-month
period beginning 2 years after the regulation is finalized, i.e. the effective date for WDD
licensure standards and the year after the effective date for 3PL licensure standards.

11

D. Baseline Conditions
The DSCSA was published in 2013, and firms are very likely to have proactively
changed their practices to meet the requirements described in the DSCSA. Therefore, we adopt
the pre-statute baseline for this analysis and consider impacts beginning in 2013.
1. Number of WDD and 3PL Facilities
To estimate the number of affected facilities, we use data from every facility that reported
to us as a WDD or 3PL as of July 2019. We match these data to information from the Dun &
Bradstreet database.3 Dun & Bradstreet data contain information on each company’s sales,
number of employees, and its parent company. To measure individual facility size, we use the
number of employees associated with the facility’s parent company, assuming that subsidiary
facilities would have access to parent company resources.
In Table 4, we report the number of WDD and 3PL facilities by employee size. We
estimate that there are 1,951 WDD facilities and 459 3PL facilities. Furthermore, we estimate
that there are 1,560 unique firms operating the facilities, including 1,427 firms that operate WDD
facilities and 292 firms that operate 3PL facilities.4
Table 4. Total Number of WDD and 3PL Facilities by Employee Size
Employee Size
1–19 Employees
20–99 Employees
100–499 Employees
500 or more Employees
Total Number of Facilities

Number of WDD Facilities
1,056
423
309
163
1,951

Number of 3PL Facilities
164
141
94
60
459

2. Baseline Practices at WDD and 3PL Facilities
The rule’s impact would depend upon how many facilities would need to adopt each
standard to comply with the proposed rule, if finalized. We base our estimate on available data
on the number of WDD and 3PL facilities and their baseline practices in each state. We use state
standards that were in place around the time that Congress passed the DSCSA as a proxy for
baseline practices at WDD and 3PL facilities.
Equating baseline practices with licensure standards could underestimate overall baseline
practices. We expect that facilities proactively implement stricter standards when the benefits of
the stricter standards outweigh their costs. We welcome any comments that estimate how many
facilities practice stricter standards than those required by the states in which these facilities
operate, and which stricter standards they practice.

3

https://www.dnb.com/
These numbers do not sum to the total number of firms, as several firms operate more than one facility, and some
firms operate both WDD and 3PL facilities.
4

12

Using the Westlaw database, we assess state standards for WDD and 3PL licensure
around the time when Congress passed the DSCSA (Ref. [2]). This database contains every state
licensing standard that was applied to WDDs in 2014. We assume that states with WDD
licensing standards worded similarly to the standards in this proposed rule have already adopted
the proposed provisions in this rule. As of 2014, all states license WDDs. However, most states
either did not license 3PLs or licensed them using the same licensure program as for WDDs. We
assume that 3PLs follow the same licensure standards as WDDs and request comment on this
assumption.
Licensing standards vary across states. Eighteen states, Puerto Rico, and other U.S.
territories have adopted the minimum national provisions required under PDMA. We find, for
example, that some states already require criminal background checks (27 states), routine
inspections (4 states), and surety bonds (17 states). In Table 5, we estimate the number of WDD
facilities licensed in states that do not already require these provisions proposed under this rule.
In Table 6, we estimate the number of 3PL facilities licensed in states that do not already require
two of these provisions proposed under this rule. We also find that no states currently have
standards for written SOPs related to equipment maintenance, personnel, transportation, or
authorized trading partners.
Table 5. Number of WDD Facilities Licensed in States that Do Not Require Criminal
Background Checks, Routine Inspections, or Surety Bonds
Employee Size
1–19 Employees
20–99 Employees
100–499 Employees
500 or More Employees
Total Number of Facilities

Criminal Background
Checks
395
153
117
53
718

Routine Inspections

Surety Bond

1,035
405
303
156
1,899

488
216
164
81
949

Table 6. Number of 3PL Facilities Licensed in States that Do Not Require Criminal Background
Checks or Routine Inspections
Employee Size
1–19 Employees
20–99 Employees
100–499 Employees
500 or More Employees
Total Number of Facilities

Criminal Background Checks
55
52
24
14
145

Routine Inspections
162
134
92
58
446

3. The Cost of Labor
In Table 7, we present the estimates we use to value the cost of labor in this analysis. To
estimate labor costs, we use an employee’s hourly cost of labor (mean hourly wages plus benefits
and overhead). Following the Department of Health and Human Services (HHS) guidance, we
assume that benefits and overhead equal 100 percent of the mean wage. For private firms and
states, we use data from the Bureau of Labor Statistic’s 2020 National Occupational

13

Employment and Wage database to estimate the mean hourly wages for different occupations.5
For our labor costs, we use internal data from our Fully Loaded Full Time Employee Cost
Model.
Table 7. Labor Cost Values Used in This Analysis
Entity
WDDsa
WDDsa
WDDsa
3PLsb
3PLsb
3PLsb
Statesc
Statesc
Statesc
AOsd
AOsd
FDA

Employee Category
Designated Representativese
Lawyers
Supervisorsf
Designated Representativese
Lawyers
Supervisors
Lawyers
Legislative Staffersg
Compliance Officers
Compliance Officers
Managers
CDER Employees

Hourly Wage
$70.18
$87.22
$31.92
$62.15
$85.03
$28.92
$46.85
$24.80
$29.28
$40.16
$64.13
$71.10

Hourly Labor Cost
$140.36
$174.44
$63.84
$124.30
$170.06
$57.84
$93.70
$49.60
$58.56
$80.32
$128.26
$142.20

NAICS Code 4240A2, “Merchant Wholesalers, Nondurable Goods.”
NAICS Code 488500, “Freight Transportation Arrangement.”
c
NAICS Code 999200, “State Government, Excluding Schools and Hospitals.”
d
NAICS Code 813900, “Business, Professional, Labor, Political, and Similar Organizations”
e
We use the occupation “General and Other Operations Managers” to estimate the wage for designated
representatives.
f
We use the occupation “First-Line Supervisors of Production and Operating Workers” to estimate the wage for
supervisors.
g
We use the occupation “Legal Support Workers” to estimate the wage for legislative staffers.
a

b

E. Benefits of the Proposed Rule
1. Benefits
a. Quantifying Benefits Using Cargo Theft Data
Uniform licensing standards for WDDs and 3PLs could generate public health benefits by
reducing drug diversion or counterfeiting. Many drugs require strict environmental conditions to
ensure their safety and efficacy. Exposing drugs to adverse conditions can change their chemical
structure, potentially reducing their therapeutic benefit and thus their ability to treat the end
user’s underlying health condition. Diverted drugs may also spoil, potentially resulting in
adverse events for patients.
We expect that the proposed rule’s standards for inspections, maintenance of equipment,
and standard operating procedures would reduce the diversion of illegitimate drugs into the
legitimate supply chain.6 For the purposes of our analysis, we assume that rulemaking would
5

Available at https://www.bls.gov/oes/2020/may/oessrci.htm.
Distributors already have some incentives to prevent drug diversion, as they would likely incur product losses from
any spoiled drugs they discover and could incur losses if subject to enforcement actions by licensing authorities or
sued by consumers affected by a spoiled drug. Any potential benefit of preventing diversion would only occur for
6

14

eliminate drug diversion, though we expect that this overestimates the effectiveness of the rule.
We request comment on the impacts of the proposed rule on the amount of drug diversion.
The benefits of reducing drug diversion equals the difference between the total
willingness-to-pay for the diverted drugs had they not been diverted minus the total willingnessto-pay for the diverted drugs once they have been diverted. The willingness-to-pay for a diverted
drug had it not been diverted reflects the maximum price that a consumer would pay if they did
not know the drug was diverted, while the willingness-to-pay for a diverted drug once it has been
diverted reflects the maximum price that a consumer would pay if they know the drug was
diverted. Both values are difficult to estimate and likely vary by age, gender, education, and
other socioeconomic characteristics.
The willingness-to-pay for a diverted drug once it has been diverted may be positive,
zero, or negative. If diversion reduces the therapeutic benefit of a drug but does not render it
ineffective, the willingness-to-pay for the diverted drug may be positive. If diversion eliminates
the therapeutic benefit of a drug and causes no adverse events, then the willingness-to-pay for the
diverted drug may be zero. If diversion reduces the therapeutic benefit of a drug and leads to
adverse events, then the willingness-to-pay for the diverted drug may be negative. In the absence
of better information about the willingness-to-pay for diverted drugs, we assume that the
willingness-to-pay is zero. We welcome comments on this assumption.
To approximate the willingness-to-pay for diverted drugs had they not been diverted, we
use the market price of diverted drugs. Because patients would only use a drug if the therapeutic
benefit is greater than or equal to the price of the drug, the market price represents a lower bound
on the willingness-to-pay. We estimate the total willingness-to-pay for diverted drugs had they
not been diverted using data on one form of drug diversion: cargo theft.
Cargo theft, in which drugs are stolen from warehouses or carriers, generally involves
large quantities of drugs. Large quantities of drugs may be difficult for thieves to resell
individually, so they may seek to sell them in bulk to wholesalers in the legitimate supply chain.
Diverted drugs may be obtained through other channels, such as from individual patients or
through prescription fraud, but these channels are more likely to yield smaller quantities of drugs
which drug diverters could more easily sell outside the legitimate supply chain.
Based on proprietary data from the Pharmaceutical Cargo Security Coalition, we estimate
that the annual replacement cost for prescription drugs lost to cargo theft ranges from $0.19
million to $5.02 million, with a primary estimate of $1.60 million. We convert these estimates to
the retail value of diverted prescription drugs by dividing by the average ratio of cost of sales to
revenue from two major domestic drug manufacturers, which ranges from 0.18 to 0.25, with a
primary estimate of 0.21. Then, we estimate that the annual retail value of diverted prescription
drugs ranges from $0.76 million to $27.96 million, with a primary estimate of $7.78 million.
Based on our assumptions that the willingness-to-pay for diverted drugs once they are
diverted is zero and that the willingness-to-pay for diverted drugs had they not been diverted
equals the market price, the annual retail value of diverted prescription drugs represents the
standards of the proposed rule that both (a) decrease the risk of drug diversion and spoilage and (b) distributors
currently consider costlier than their private expected benefit of the reduction in diversion risk.

15

benefits of the proposed rule. We assume that these benefits begin in year 1. We request
comment on this approach to valuing the benefits of the proposed rule.
These estimates likely underestimate the total benefits of reduced drug diversion for two
reasons (though, as noted above, we likely overestimate the effectiveness of the rule, and thus
benefits). First, by using cargo theft data, we only capture one form of drug diversion. Reducing
other forms of drug diversion and counterfeiting would produce additional benefits to
consumers. Second, the willingness-to-pay for diverted drugs may be negative if consumers
experience adverse events. We discuss this possibility in more detail in the next section.
b. Potential Public Health Benefits from Reduced Morbidity and Mortality
In our quantification of the public health benefits of diverted drugs based on cargo theft
data, we assume that consumers’ willingness-to-pay for diverted drugs is zero. If drug diversion
reduces the therapeutic benefit of a drug and leads to adverse events, then the willingness-to-pay
for the diverted drug may be negative.
Drug diversion or counterfeiting could result in adverse public health outcomes in users
in the following ways:
•
•

•

•

Drug spoilage: Exposing drugs to adverse conditions can change their chemical
structure, potentially reducing their therapeutic benefit and thus their ability to treat the
end user’s underlying health condition.
Drug contamination: Drug diverters may remove labels from the containers of diverted
drug to help them appear legitimate before reintroducing them to the supply chain; this
may involve toxic solvents such as lighter fluid, which could contaminate the drug bottle
or the drug itself.
Interrupted drug therapy: If drug diversion or counterfeiting results in an ineffective
product or a product with missing active ingredients, consumers that unknowingly
consume these drugs would experience an interruption in drug therapy, possibly leading
to withdrawal symptoms, symptom reoccurrence, or worsening health.
Undeclared ingredients: Counterfeit drugs containing undeclared ingredients could
result in allergic reactions or toxic poisonings in patients.7

Because we have limited information on the frequency of these types of events, is
difficult to quantify any public health benefits of the proposed rule, if finalized, resulting from
reduced morbidity and mortality in patients. In an appendix in Section IV, we provide examples
of adverse events resulting from drug diversion or counterfeiting that the uniform licensing
standards for WDDs and 3PLs that we are proposing potentially could have prevented.
2. Cost Savings from Reduction in Frequency of Licensure Application
The proposed rule sets the license terms at two years for WDDs and three years for 3PLs.
Currently, one state (New York) requires license application renewal every three years, 21
require renewal every two years, and 31 require annual renewal. The proposed standards would
7

Worldwide, investigators have identified counterfeit drugs and devices that contain heavy metals; poisons;
household materials such as floor wax, sheet rock, and paint thinner; salt or sugar; undeclared medications; and
missing active ingredients (Ref. [25],[26]).

16

generate cost savings for WDDs and 3PLs in states that require renewal more frequently than the
license terms in the proposed rule. Industry would save time to prepare and submit these
applications and state governments would save time to review and process these applications.
The proposed standards would generate costs for New York.
To estimate the cost savings related to a reduction in frequency of licensure application,
we calculate the total number of pages in the forms and instructions for licensure in each state.
We assume that a designated representative would take about 0.2 hours to review and complete
each page of an application, including any forms and instructions. We base this estimate on the
Paperwork Reduction Act estimate for Form FDA 3911, which has five total pages of forms and
instructions and an estimated total response time of one hour. Form 3911 collects some of the
same information that state licensure applications require but does not match any state’s
application exactly. To incorporate uncertainty in our estimates, we use a low estimate of 0.1
hours per page and a high estimate of 0.3 hours per page. We assume that 3PLs complete the
same application as WDDs and request comment on this assumption.
Facilities apply for a license to operate in the state where they are located. For our lower
bound, we estimate the cost savings of reduced frequency of application for in-state licenses
only. This estimate only accounts for the license applications that facilities submit to their home
state. In practice, facilities also apply for licenses in most states where they do business. If
facilities complete the same applications for ship-to licensure as they do for in-state licensure,
this would result in larger cost savings. Therefore, for our upper bound estimates, we estimate
the cost savings of reduced frequency of application for both in-state and out-of-state licenses.
In Table 8, we estimate the annual cost savings from reduced frequency of licensure for
WDDs. WDDs licensed in states with annual licensure frequency would experience cost savings.
We estimate that annual cost savings for WDDs would range from $0.38 million to $6.21
million.
Table 8. Annual Cost Savings for WDDs from Reduced Frequency of Licensure
Value
Number of Licenses
Pages per Licensea,b
Hours per Page
Hours per License
Cost per Licensec
Annual Cost per License (Baseline)d
Annual Cost per License (Rulemaking)e
Total Annual Cost Savingsf ($ millions)

Annual Licensure (Low)
1,107
49
0.1
5
$690
$690
$345
$0.38

a

Annual Licensure (High)
15,944
18
0.3
6
$779
$779
$389
$6.21

Average over the set of licenses included in the estimate.
The average number of pages over the set of applications for in-state and out-of-state licenses (high estimate) is
less than the average number of pages over the set applications for in-state licenses (low estimate).
c
Cost per license equals hours per license × the cost of labor for a WDD designated representative from Table 7.
d
Baseline annual cost per license equals the cost per license ÷ the baseline licensure frequency (1 year).
e
Annual cost per license with rulemaking equals the cost per license ÷ the new licensure frequency (2 years).
f
Total annual cost savings equals the change in the annual cost per license × the number of licenses.
b

17

In Table 9, we estimate the annual cost savings from reduced frequency of licensure for
3PLs. Those 3PLs with licenses in states with annual licensure frequency or 2-year licensure
frequency would experience cost savings. We estimate that annual cost savings for 3PLs would
range from $0.08 million to $1.27 million. Total annual cost savings for WDDs and 3PLs would
range from $0.47 million to $7.47 million. We expect that these cost savings would begin in year
1.
Table 9. Annual Cost Savings for 3PLs from Reduced Frequency of Licensure
Value
Number of Licenses
Pages per Licensea,b
Hours per Page
Hours per License
Cost per Licensec
Annual Cost per License (Baseline)d
Annual Cost per License (Rulemaking)e
Total Annual Cost Savingsf ($ millions)

Annual
Licensure
(Low)
268
35
0.1
4
$435
$435
$145
$0.08

Annual
Licensure
(High)
2,294
20
0.3
6
$763
$763
$254
$1.17

2-Year
Licensure
(Low)
177
19
0.1
2
$235
$118
$78
$0.01

2-Year
Licensure
(High)
1,126
14
0.3
4
$533
$266
$178
$0.10

a

Average over the set of licenses included in the estimate.
The average number of pages over the set of applications for in-state and out-of-state licenses (high estimates) is
less than the average number of pages over the set applications for in-state licenses (low estimates).
c
Cost per license equals hours per license × the cost of labor for a 3PL designated representative from Table 7.
d
Baseline annual cost per license equals the cost per license ÷ the baseline licensure frequency (1 year or 2 years).
e
Annual cost per license with rulemaking equals the cost per license ÷ the new licensure frequency (3 years).
f
Total annual cost savings equals the change in the annual cost per license × the number of licenses.
b

3. Cost Savings from Fewer Ship-To Licenses for 3PLs Licensed by FDA
a. Facilities Licensed by FDA
All states currently have WDD licensure programs in place. To continue licensing, they
would need to modify those programs to be consistent with the proposed rule, if finalized. Some
states may adjust their programs to be consistent with national standards in time for the first
cycle of licenses. However, some states may take longer to adjust their programs and some states
may choose not to license. We would license WDD facilities in states without compliant WDD
licensure programs.
In addition, approximately 19 states had licensure programs in place for 3PLs prestatute. States without 3PL licensure programs that choose to license would need to establish
licensure programs. States may not have these licensure programs in place in time for facilities to
obtain licenses in the first cycle. We would license 3PL facilities in states without compliant 3PL
licensure programs.
8

8

As of this analysis, 31 states have licensure programs for 3PLs. We expect that states established these additional
licensure programs in response to the DSCSA, and the increase in the number of programs is an impact of this
rulemaking.

18

In Table 10, we present our assumptions about the number of states without compliant
WDD licensure programs and the number of states without compliant 3PL licensure programs
over time.
Table 10. States without Compliant Licensure Programs over Time
Year
1
2
3
4
5
6
7+

States without
Compliant WDD
Licensure Programs
(Low)
10
10
4
4
1
1
1

States without
Compliant WDD
Licensure Programs
(High)
15
15
8
8
4
4
4

States without
Compliant 3PL
Licensure Programs
(Low)
22
22
22
10
10
10
1

States without
Compliant 3PL
Licensure Programs
(High)
27
27
27
13
13
13
4

We assume that WDD facilities would begin to submit license applications to us in year 1
and would then renew their licenses every 2 years thereafter. We also assume that 3PL facilities
would begin to submit license applications to us in year 1 and would then renew their licenses
every 3 years thereafter. Based on these assumptions, we estimate the number of facilities that
we would license each year over 10 years in Table 11.
Table 11. Facilities Licensed by FDA over Time
Year
1
2
3
4
5
6
7+

WDDsa
(Low)
383
383
153
153
38
38
38

WDDsa
(High)
574
574
306
306
153
153
153

3PLsb (Low)

3PLsb (High)

Total (Low)

Total (High)

246
246
246
112
112
112
11

302
302
302
146
146
146
45

629
629
399
265
150
150
49

876
876
608
452
299
299
198

a

Number of WDD facilities equals the number of states without a WDD licensure program × the total number of
WDD facilities (1,951) ÷ the number of states with WDD facilities (49 plus Guam and Puerto Rico).
b
Number of 3PL facilities equals the number of states without a 3PL licensure program × the total number of 3PL
facilities (459) ÷ the number of states with 3PL facilities (40 plus Puerto Rico).

b. Cost Savings to 3PLs Licensed by FDA
Under the proposed rule, 3PLs we license would need a single license per facility and
would not need to apply for ship-to licenses. 3PLs would experience cost savings from having to
apply for fewer licenses. In Table 11, we estimated the number of 3PL facilities that we would
license over time. Those facilities would need only one license each and would avoid applying
for ship-to licenses.
Based on our 3PL registration data, we estimate that 3PL facilities have an average of 7.5
licenses each. Each 3PL we license would need one license, so we estimate that the average 3PL
19

facility we license would avoid completing 6.5 applications, or 2.2 applications per year in a
three-year licensure cycle. Using the same assumptions we used to estimate the cost per license
application in Section E2, we estimate that the average cost of a 3PL license application ranges
from $230 to $689. Given these estimates, we estimate the annual cost savings per cycle in Table
12.
Table 12. Average Annual Cost Savings for 3PLs Licensed by FDA
Year
1
2
3
4
5
6
7+

Avoided Ship-To
Licenses (Low)a
536
536
536
244
244
244
24

Avoided Ship-To
Licenses (High)a
658
658
658
317
317
317
97

Cost Savings (Low, $
millions)b
$0.12
$0.12
$0.12
$0.06
$0.06
$0.06
$0.01

Cost Savings (High,
$ millions)b
$0.45
$0.45
$0.45
$0.22
$0.22
$0.22
$0.07

a

Annual avoided ship-to licenses equals 2.2 avoided licenses per year × the number of facilities licensed by FDA
from Table 11.
b
Annual cost savings equals annual avoided ship-to licenses × the average cost per 3PL license application.

The annualized cost savings to 3PLs licensed by FDA over 10 years would range from
$0.06 million to $0.24 million at a 7 percent discount rate and from $0.06 million to $0.23
million at a 3 percent discount rate.
4. Cost Savings from State Standards Not Included in the Proposed Rule
To identify state standards that are not part of the proposed rule, we reviewed regulations
in thirty states with legislative activity regarding wholesale distribution as reported by the Food
and Drug Law Institute (Ref. [3]). We also reviewed regulations for Washington, D.C. We
reviewed state regulations current as of 2014 to exclude regulations that states may have enacted
in response to the DSCSA. We assume that 3PLs are subject to the same state standards as
WDDs. Based on the information and data currently available to us, we quantified and
qualitatively described some of the cost savings to WDDs and 3PLs that would result from states
no longer enforcing standards that would be not be included in this rule, if finalized.
a. Examinations
At least one state, Florida, requires that designated representatives pass an examination.
Based on information from commercially-available test prep courses,9 we estimate that a
designated representative spends between 14 and 18 hours preparing for the examination.
Furthermore, we assume that a designated representative spends between 3 and 4 hours traveling
to and taking the examination. Using the fully loaded wage for a designated representative
(Table 7), this total time cost ranges from $2,386 to $3,088 per designated representative. If we
include the $50.50 exam fee10, the total cost per designated representative ranges from $2,437 to
$3,138.
9

http://www.skillsplusinc.com/florida.htm
http://www.pearsonvue.com/vouchers/pricelist/fldbpr.asp

10

20

We use the number of facilities in Florida (124) as the lower bound number of affected
facilities and we use the number of facilities with Florida licenses (468) as the upper bound
number of facilities. Using information from the Bureau of Labor Statistics Job Openings and
Labor Turnover Survey, we assume that designated representatives have a turnover rate of 2.6
percent per year.11 We therefore estimate that between 3 and 12 designated representatives would
no longer take the exam each year. Given these estimates, the total annual cost savings would
range from $0.01 million to $0.04 million. We assume that these cost savings would begin in
year 1.
b. Self-Assessments
Currently, California requires that designated representatives complete a self-assessment
with 22 pages every two years, for an average of 11 pages per year. Oregon requires a selfassessment with 4 pages annually. Under the proposed rule, designated representatives would no
longer spend time completing these self-assessments. Following our assumption for licensure
applications, we assume that it takes representatives between 0.1 hours and 0.3 hours to complete
each page of the self-assessment. Then, we estimate that the California assessment takes between
1.1 and 3.3 hours to complete each year and that the Oregon self-assessment takes between 0.4
and 1.2 hours to complete each year.
For our lower bound, we assume that all facilities located in California and Oregon
currently comply with these standards. For our upper bound, we assume that all facilities with
California and Oregon licenses comply with these standards. Given these assumptions, we
estimate the total annual cost of self-assessments to WDDs and 3PLs in California and Oregon in
Table 13. Based on Table 13, the total annual cost savings from ending self-assessments in these
two states would range from $0.03 million to $0.43 million. We assume that these cost savings
would begin in year 1.
Table 13. Annual Cost of Self-Assessments in California and Oregon
Value
Annual Time per Assessment (Hours)
Number of WDDs Complying
Number of 3PLs Complying
Total Annual Time for Assessments (Hours)a
Total Annual Cost of Assessments ($
millions)b

California
(Low)
1.1
173
27
220

California
(High)
3.3
641
104
2,459

Oregon
(Low)
0.4
9
1
4

Oregon
(High)
1.2
465
90
666

$0.03

$0.34

$0.00

$0.09

a

Equals the total number of facilities complying (WDDs and 3PLs) × the annual time per assessment.
Equals the annual time per assessment × the average wage for WDDs and 3PLs (Table 7), weighted by the number
of facilities of each type complying.
b

c. Other Cost Savings from Changes in State Standards
We identified several other state standards that are not part of the proposed rule. We
summarize these standards in Table 14. To the extent that the proposed standards would create

11

https://www.bls.gov/news.release/jolts.htm

21

cost savings for WDDs or 3PLs, we underestimate the cost savings of the rule. We request data
and detailed comment on any cost savings due to the elimination of these standards.
Table 14. Additional Examples of State Standards for Licensure that are Not Included in the
Proposed Rule and Would Result in Cost Savings to Industry
States
Colorado
Idaho
Louisiana
Nebraska, New
Mexico, Wyoming
New Mexico
North Dakota, Nevada
Oklahoma

Oregon
South Dakota

State Standard
Minimum age for designated
representative: 21
Continuing education
Perpetual inventories of all
transactions regarding the receipt
and distribution or other disposition
Must submit photograph of
designated representative
Designated representative must
complete training program
Provisions for temporary or
provisional licensure
Wholesale facility shall not be in
the same facility as a retail
pharmacy
Background checks for principals,
owners, officers, and designated
representatives
Out-of-state licensure exemption in
emergencies

Proposed Standard
Minimum age for designated
representative: 18
No specific standard
Would retain records for 3 to 6 years
No standard
No specific standard
No such provisions
No standard
Background checks for facility
managers and designated
representatives
No such provisions

5. Cost Savings to States from Fewer State Licenses
We expect that some states would not set up a 3PL licensure program or a conforming
WDD licensure program by year 1. Instead, we would license WDD and 3PL facilities in those
states. State licensing authorities currently incur costs when they license facilities. States would
incur cost savings from any facilities that they would no longer license under the proposed rule;
they would also incur a reduction in licensure fee revenues. In Table 11, we estimate the number
of facilities in states without compliant WDD or 3PL programs over time. We would license
these facilities, and states would incur cost savings related to licensing these facilities.
States charge an average annual fee of $341 for licensure. We assume that this fee
reflects the cost to states to license a facility. Given this assumption, we estimate the annual cost
savings (and the reduction of fee revenues) over time to states from issuing fewer WDD and 3PL
licenses in Table 15.
Table 15. Cost Savings to States from Fewer WDD and 3PL Licenses over Time ($ millions)
Year
1
2
3

Total Cost Savings (Low)a
$0.21
$0.21
$0.14

22

Total Cost Savings (High)a
$0.30
$0.30
$0.21

Year
4
5
6
7+

Total Cost Savings (Low)a
$0.09
$0.05
$0.05
$0.02

Total Cost Savings (High)a
$0.15
$0.10
$0.10
$0.07

a

Total cost savings equals the number of facilities licensed by FDA from Table 11 × $341, the assumed average
annual cost for a state to issue a license.

The reduction in costs associated with licensure represents cost savings to states. Though
we use the licensure fee as a proxy for the cost of licensure to states, reductions in the revenue
collected by states from licensure fees represents a transfer from states to facilities. We discuss
these transfers further in Section G.
The annualized cost savings to states would range from $0.09 million to $0.14 million at
a 7 percent discount rate and from $0.08 million to $0.14 million at a 3 percent discount rate.
6. Additional Benefits and Cost Savings
The proposed rule would require each WDD firm to furnish a surety bond to the licensor
(the state or FDA), even if the firm had multiple facilities and operated in multiple states. This
surety bond would be intended to promote compliance with the DSCSA and increase the
likelihood that any administrative penalties levied on the WDD facility by the licensor would be
paid. If firms with multiple facilities or firms that operate in multiple states currently hold more
than one bond, they would experience cost savings under the rule from reducing the number of
bonds they hold.
WDDs and 3PLs may experience additional cost savings from uniform licensing
standards, particularly those WDDs and 3PLs that operate in multiple states. These firms would
review and comply with only one set of standards rather than multiple sets of standards as a
result of the proposed rule, if finalized.
The benefits and cost savings of this proposed rule are highly uncertain and difficult to
measure. We request comment on all the assumptions in the proceeding sections and any
additional benefits or cost savings associated with this proposed rule.
7. Summary of Benefits
In Table 16, we summarize the stream of monetized benefits from the proposed rule, if
finalized. Benefits quantified with the cargo-theft approach and cost savings to WDDs and 3PLs
from the reduced frequency of licensure, fewer examinations, and fewer self-assessments would
occur annually beginning in year 1. Cost savings from fewer ship-to licenses for some 3PLs and
cost savings to states from reduced licensure costs would begin in year 1, gradually decrease
until the third 3PL licensure cycle, and occur annually afterwards.
Table 16. Stream of Benefits from the Proposed Rule over 10 Years ($ millions)
Year
0
1
2

Primary Estimatea
$0.00
$12.54
$12.54

Low Estimate
$0.00
$1.60
$1.60

23

High Estimate
$0.00
$36.65
$36.65

Year
3
4
5
6
7
8
9

Primary Estimatea
$12.45
$12.26
$12.21
$12.21
$12.08
$12.08
$12.08

Low Estimate
$1.52
$1.41
$1.37
$1.37
$1.29
$1.29
$1.29

High Estimate
$36.56
$36.27
$36.22
$36.22
$36.03
$36.03
$36.03

a

For any component of the benefits without a primary estimate described in this PRIA, the primary estimate is the
average of the low estimate and the high estimate.

In Table 17, we estimate the discounted total benefits of the proposed rule over 10 years.
Annualized benefits would range from $1.25 million to $31.50 million at a 7 percent discount
rate and from $1.26 million to $32.18 million at a 3 percent discount rate. The annualized
benefits to WDDs would range from $0.36 million to $5.74 million at a 7 percent discount rate
and $0.37 million to $5.87 million at a 3 percent discount rate. The annualized benefits to 3PLs
would range from $0.14 million to $1.38 million at a 7 percent discount rate and $0.14 million to
$1.40 million at a 3 percent discount rate.
Table 17. Discounted Total Benefits of the Proposed Rule over 10 Years ($ millions)
Value
Present Value (7%)
Present Value (3%)
Annualized Value (7%)
Annualized Value (3%)

Low Estimate
$9.36
$11.09
$1.25
$1.26

Primary Estimate
$80.14
$95.64
$10.66
$10.89

High Estimate
$236.76
$282.76
$31.50
$32.18

F. Costs of the Proposed Rule
1. Costs for WDDs, 3PLs, and States to Read and Understand the Rule
We expect that WDDs and 3PLs would need to read and understand the rule.12 We
assume that lawyers at each WDD or 3PL firm would read the rule, interpret its provisions, and
determine which provisions they would have to implement. We also assume that designated
representatives at all WDD and 3PL facilities would also need to read and understand the rule.
We also expect that a government attorney in each of the 53 jurisdictions would need to read and
understand the rule. Based on these assumptions, in Table 18 we estimate the number of
employees that would need to read and understand the rule and the weighted average hourly
labor cost per person by entity type.
Table 18. Number of Employees Reading the Rule and Average Hourly Labor Costs
Value
Number of Designated Representatives Reading the Rulea
Number of Lawyers Reading the Ruleb

12

WDDs
1,951
1,427

3PLs
459
133

States
0
53

While we also expect that approved organizations would need to read and understand the rule, we assume that the
costs of executive and legal review, discussed in Section F6, would include these costs.

24

Value
Weighted Average Hourly Labor Cost per Personc

WDDs
$154.76

3PLs
$134.58

States
$93.70

a

Based on the number facilities in Table 4.
For WDDs, this number equals the number of WDD firms. For 3PLs, it equals the total number of firms minus the
number of WDD firms. For states, it equals the number of jurisdictions with WDD or 3PL facilities.
c
Based on labor cost estimates from Table 7.
b

We anticipate that the definitions clarified in “Certain Requirements Regarding
Prescription Drug Marketing; Proposed Rule” (or Part 203) are necessary to understand this
proposed rule. We assume that only the lawyers and representatives reading this rule would also
read Part 203 and account for the cost of reading and understanding Part 203 by these
individuals.
This proposed rule has approximately 50,000 words and Part 203 has approximately
5,000 words, for a combined 55,000 words. Based on HHS guidance, we assume a reading speed
of between 200 and 250 words per minute. We then estimate that it would take each person
between 3.7 hours and 4.6 hours to read and understand the rule.
Based on the estimates in Table 18 and the average time it would take each person to read
and understand the rule, the total one-time cost to read and understand the rule would range from
$2.23 million to $2.78 million. We assume that WDDs, 3PLs, and states would incur these costs
before year zero, in the year in which the proposed rule would finalize. We include the net
present value of these costs in the year 0 costs of the proposed rule.
2. Reporting Costs
DSCSA requires that designated representatives report their facilities using our website.
Using information from the Eastern Research Group (ERG), we estimate that it would take
representatives 0.25 hours to report a facility each year, or $35 for WDD representatives and $31
for 3PL representatives (Ref. [4]). Based on the total number of WDD and 3PL facilities from
Table 4, the total annual reporting cost would equal $0.07 million for WDDs and $0.01 million
for 3PLs, or a total of $0.08 million annually.
However, representatives have reported their facilities each year since 2013. Therefore,
we include the present value of costs of reporting from 2013 in the year 0 costs. Because we are
uncertain when this rulemaking would finalize, we assume that year 1 is between 2024 and 2026.
Given this assumption, the net present value of reporting costs in year 0 would range from $1.22
million to $1.40 million at a 7 percent discount rate and from $1.14 million to $1.21 million at a
3 percent discount rate. Annually after year 0, the cost of reporting would equal $0.08 million.
3. Costs from Increased Frequency of Licensure Application
Under the proposed rule, WDDs would have to renew their licenses every two years.
Under these proposed standards, WDDs in New York would have to apply for licenses more
frequently than without the standards. New York currently requires licensure every three years.
To estimate the potential cost of more frequent licensure application, we follow the same method
we used in the benefits section for estimating cost savings of reduced licensure frequency for
other states (Section E2).

25

We present our estimates of the annual costs due to increased frequency of licensure
application in Table 19. The annual costs for WDDs in New York would range from $0.01
million to $0.12 million. We assume that these costs would begin in year 1.
Table 19. Annual Costs for WDDs from Increased Frequency of Licensure
Value
Number of Licenses
Pages per Licensea
Hours per Page
Hours per License
Cost per Licenseb
Annual Cost per License (Baseline)c
Annual Cost per License (Rulemaking)d
Total Annual Costse ($ millions)

3-Year Licensure (Low)
128
23
0.1
2.3
$323
$108
$161
$0.01

3-Year Licensure (High)
731
23
0.3
6.9
$968
$323
$484
$0.12

a

Average over the set of licenses included in the estimate.
Cost per license equals hours per license × the cost of labor for a WDD designated representative from Table 7.
c
Baseline annual cost per license equals the cost per license ÷ the baseline licensure frequency (3 years).
d
Annual cost per license with rulemaking equals the cost per license ÷ the new licensure frequency (2 years).
e
Total annual costs equal the change in the annual cost per license × the number of licenses.
b

4. Cost of New Standards for WDDs and 3PLs
a. Costs to Conduct Criminal Background Checks
The rule would require designated representatives and facility managers at WDDs and
3PLs to undergo a one-time criminal background check. We would additionally require
designated representatives and facility managers at WDDs to undergo fingerprinting during this
background check. Facility managers are managers that supervise employees that operate and
handle prescription drugs. Implementing a background check would impose an initial one-time
cost to check current designated representatives and facility managers and annual costs to
perform background checks when facilities hire new designated representatives and facility
managers.
In Table 20 we estimate the number of employees requiring criminal background checks
in year 1 and annually after year 1. Based on information from ERG, we assume that each
facility employs one designated representative and that the number of facility managers depends
on the size of the facility. Specifically, we assume that facilities of fewer than 100 workers
employ two facility managers, facilities with between 100 and 500 workers employ six facility
managers, and facilities with 500 or more workers employ eight facility managers (Ref. [5]).
In year 1, all 3,555 designated representatives and facility managers in states that do not
already require criminal background checks would require a background check. Following our
assumption about employee turnover in Section E4a, we estimate that 92 new employees (3,555
employees × 2.6 percent turnover) would require a background check annually after year 1.

26

Table 20. Number of Employees Requiring Criminal Background Checks under the Proposed
Rule
Value
WDD Facilities with New
Standardsa
3PL Facilities with New
Standardsa
Background Checks in Year 1b
Background Checks Annually
After Year 1c

1–19
Employees

20–99
Employees

100–499
Employees

500 or
more
Employees

Total

395

153

117

53

718

55

52

24

14

145

1,350

615

987

603

3,555

35

16

26

16

92

a

The number of facilities with new standards equals the number of facilities of that size category from Table 4
minus the number of facilities in states that already conduct criminal background checks (Table 5 for WDDs and
Table 6 for 3PLs).
b
The number of background checks in year 1 equals the total number of designated representatives and facility
managers at all WDD and 3PL facilities.
c
The number of background checks annually after year 1 equals the total number of background checks in year 1 ×
the average employee turnover rate of 2.6 percent.

We estimate that a single criminal background check costs approximately $100. For
WDDs, a designated representative also would spend approximately 15 minutes per employee
collecting and submitting fingerprints at a cost of $35 per background check. Then, the estimated
cost to conduct a single background check would equal $129 on average for WDDs and 3PLs.13
Based on the average cost of a single background check and the number of background
checks in Table 20, we estimate that the costs of conducting criminal background checks would
equal $0.46 million in year 1 and $0.01 million annually after year 1.
b. Costs of Establishing Written Standard Operating Procedures (SOPs)
The rule would require facilities to establish four types of written standard operating
procedures. First, WDD facilities14 would need to establish procedures to ensure that facilities
only conduct business with authorized trading partners. Second, both 3PL and WDD facilities
would need to establish procedures to ensure products are transported under conditions that
prevent the compromise of product identity, strength, quality, integrity, or purity. In addition,
these procedures would need to include methods to ensure the identification, investigation,
documentation, correction, and reporting of deviation from the above are identified, investigated,
documented, corrected, and reported to authorized trading partners. Third, facilities would need
to establish procedures to document regular calibration and validation of equipment in the

13

The cost of a background check for a WDD employee would equal $135 ($100 fee + 0.25 hours × $140.36 per
hour) and the cost of a background check for a 3PL employee would equal the $100 fee. The average cost to conduct
a background check, weighted by the number of affected WDD and 3PL facilities in Table 4, is $129.
14
The rule would not require that 3PL facilities establish procedures to ensure that facilities only conducting
business with authorized trading partners. However, we do regard this as best practice for 3PLs. To the extent that
some 3PLs would adopt these recommendations in response to the proposed rule, we would underestimate the costs
to 3PLs. We request comment on this assumption.

27

facility. Fourth, facilities would need to establish procedures to ensure the qualifications of all
personnel are met, maintained, and documented.
In this section, we estimate the one-time costs to establish written SOPs, the recurring
costs to annually update SOPs, and the recurring costs to review SOPs.
One-Time Cost to Establish Written SOPs
We estimate the burden associated with establishing written SOPs from a report by ERG
(Ref. [5]). We expect that the number of hours required to establish an SOP depends on the size
of the facility. In Table 21, we estimate the total time required to establish SOPs per facility by
facility size.
Table 21. Estimated Time to Establish SOPs per Facility (Hours)
Type of SOPs
Transportation
Authorized Trading Partners
Equipment Maintenance
Personnel
Total Time per Facility

1–19
Employees
14
13
8
8
43

20–99
Employees
14
13
8
8
43

100–499
Employees
25
21
14
13
73

500 or more
Employees
36
32
22
18
108

We assume that all WDD and 3PL facilities would need to establish written SOPs in
response to this rulemaking (see Table 4). Based on this assumption and the estimates in Table
21, we expect that it would take the average WDD facility 53 hours to establish written SOPs,
while it would take the average 3PL facility 58 hours to establish written SOPs.15 To incorporate
uncertainty in our estimates, we assume an uncertainty range of 25 percent around these
estimates, for a range of 40 hours to 66 hours for WDDs and a range of 43 hours to 72 hours for
3PLs.
We assume that designated representatives would write up these procedures. Given this
assumption, the cost of labor for designated representatives (Table 7), the range of hours required
to establish written SOPs, and the total number of WDD and 3PL facilities, the one-time cost to
establish written SOPs would range from $10.92 million to $18.20 million for WDDs and from
$2.47 million to $4.11 million for 3PLs. We assume that facilities would incur these costs in year
1.
Recurring Costs to Revise SOPs
We use the same data, methods, and assumptions to estimate the recurring costs to revise
SOPs that we used to estimate the one-time costs to establish SOPs. In Table 22, we estimate the
total annual time required to revise SOPs per facility by facility size.

15

These estimates are the average time per facility across all facility size groups, weighted by the number of
facilities of the given size.

28

Table 22. Estimated Annual Time to Revise SOPs per Facility (Hours)
Type of SOPs
Transportation
Authorized Trading Partners
Equipment Maintenance
Personnel
Total Time per Facility

1–19
Employees
4
3
3
2
12

20–99
Employees
4
3
3
2
12

100–499
Employees
8
5
5
4
22

500 or more
Employees
11
8
7
6
32

Based on our assumptions and the information in Table 22, we estimate that it would take
the average WDD facility between 11 and 19 hours to revise SOPs each year, while it would take
the average 3PL facility between 12 and 21 hours to revise SOPs each year. Then, the annual
costs to revise SOPs would range from $3.13 million to $5.22 million for WDDs and from $0.71
million to $1.19 million for 3PLs. We assume that facilities would incur these costs annually
starting in year 2, since facilities would not need to revise SOPs in the same year that they
establish SOPs.
Recurring Costs to Review SOPs
Based on information from ERG (Ref. [5]), we estimate that it would take facility
managers 8 hours to review the newly established SOPs each year. The average WDD facility
employs 3.1 facility managers and the average 3PL facility employs 3.6 facility managers.16
Based on this information and assuming an uncertainty range of 25 percent, we estimate that the
average WDD facility would spend between 19 hours and 31 hours reviewing SOPs each year
and that the average 3PL facility would spend between 22 hours and 36 hours reviewing SOPs
each year.
Based on the cost of labor for facility managers (Table 7) and the total number of WDD
and 3PL facilities (Table 4), the total annual cost to review SOPs would range from $2.34
million to $3.90 million for WDDs and from $0.57 million to $0.96 million for 3PLs. We assume
that facilities would incur these costs annually starting in year 1, since facility managers would
need to review both the newly established SOPs and the revised SOPs.
c. Cost of Surety Bonds
Under the proposed rule, WDDs would submit a surety bond to its state licensing
authority to obtain or renew their licenses or would provide evidence that it possesses equivalent
surety in another state. Firms whose gross annual receipts exceed $10 million would submit a
surety bond of $100,000 or equivalent means, while firms earning $10 million or less would
submit a surety bond of $25,000.
17 states already require WDDs to furnish a $100,000 surety bond. To estimate the costs
of surety bonds, we first identify firms without licenses in those states. We match information
from WDD facility reporting data to firm information from Dun & Bradstreet to determine the
number of firms without licenses in states that already require surety bonds. Dun & Bradstreet
16

These estimates are averages of the number facility managers at facilities of different sizes, listed in Table 20,
weighted by the number of facilities of each size, listed in Table 4.

29

data also include data on firm sales, which we use to determine the type of bond a firm would
purchase. We identify 47 WDD firms with sales that exceed $10 million and 244 WDD firms
with sales below $10 million that do not have licenses in states that already require a surety
bond.
The annual cost to maintain a surety bond approximately equals the product of the surety
bond’s principal (in this case, $100,000 or $25,000) and its interest rate. We estimate that the
average interest rate for surety bonds is 1.75 percent. Then, the annual cost to maintain a
$100,000 surety bond is $1,750 ($100,000 principal × 1.75 percent interest rate) and the annual
cost to maintain a $25,000 surety bond is $438 ($25,000 principal × 1.75 percent interest rate).
Therefore, the total annual cost to maintain surety bonds is $0.08 million ($1,750 per year
× 47 firms) for firms with greater than $10 million in annual revenue and $0.11 million ($438
per year × 244 firms) for firms with less than $10 million in annual revenue. The estimated total
cost of surety bonds equals $0.19 million per year, starting in year 1.
d. Recordkeeping Costs
Current law already requires recordkeeping of commercial prescription drug transactions.
We request comment on how much the proposed rule, if finalized, would increase the
recordkeeping burden for the 1,951 WDD facilities and 459 3PL facilities beyond current
requirements. We expect that the longer record retention time for suspect and illegitimate
products of six years would have minimal costs. We request comment on this assumption.
e. Cost for 3PLs to Separate Illegitimate and Legitimate Products
The proposed rule would require 3PLs to keep illegitimate products and other products
unfit for distribution separate from saleable products in a clearly defined and designated area.
This requirement may create additional burden for 3PLs that do not have the space to keep the
product separate. We request comment on any burden associated with this requirement.
5. Cost of Routine Inspections
To ensure compliance with the rule, if finalized, we would require routine inspections of
WDD and 3PL facilities every three years. The rule would allow three types of entities to inspect
facilities: FDA, states, and approved organizations (AOs). If a state has a licensure program that
conforms to our standards, facilities in that state would apply for licenses from that state. Then,
the state would inspect facilities licensed in their state or contract out inspections to approved
organizations. If a state does not have a licensure program that conforms to our standards,
facilities in that state would apply for an FDA license. We expect that our licensure program
would primarily rely on inspection reports that staff from approved organizations would prepare.
Though state licensing authorities and approved organizations would inspect facilities,
we expect that WDDs and 3PLs would bear the costs of inspection. We request comment on this
assumption.
a. One-Time Cost for States and AOs to Train New Staff

30

Under the proposed rule, states and AOs would need to train employees to conduct
inspections. We assume that these employees would complete an 8-hour training module
covering the standards in this rulemaking. Based on the wages for compliance officers in Table
7, the cost to train a new employee would range from $468 (if only state employees conduct
inspections) to $643 (if only AO employees conduct inspections).
Our Office of Regulatory Affairs (ORA) estimates that our investigators conduct roughly
15 site visits per year each. We assume that AO or state employees could complete the same
number of inspections each year. From Table 5 and Table 6 we estimate that 1,899 WDD
facilities and 446 3PL facilities would require inspections, for a total of 2,345 inspections. To
conduct these inspections, states or approved organizations would need to train approximately
156 employees (2,345 inspections ÷ 15 inspections per employee).
The total one-time cost to train new inspection staff would range from $0.07 million to
$0.10 million. We expect that states and approved organizations would incur these costs in year
1.
b. Costs for WDDs and 3PLs to Participate in Inspections
Inspections would impose costs on WDD and 3PL facilities. During an inspection,
designated representatives would escort investigators, AO staff, or state inspectors around the
facility, answer questions and complete paperwork related to the inspection, and provide
investigators, AO staff, or state inspectors with any required records. WDDs and 3PLs would
have an initial inspection in year 1 prior to the issuance of their initial license. We expect these
facilities would then undergo routine inspections every third year thereafter.
We use information from our ORA to estimate the time spent by designated
representatives engaging in inspection-related activities in Table 23. We estimate that designated
representatives at WDDs would spend 8,826 hours participating in initial inspections in year 1
and 4,413 hours participating in subsequent inspections every 3 years afterwards. We estimate
that designated representatives at 3PLs would spend 2,200 hours participating in initial
inspections in year 1 and 1,100 hours participating in subsequent inspections every 3 years
afterwards.
Table 23. Number of Hours Spent Participating in Inspections by WDDs and 3PLs
Value
Hours per Initial Inspection
Hours per Subsequent Inspection
Total Hours for Initial Inspections
of WDDsa
Total Hours for Subsequent
Inspections of WDDsa
Total Hours for Initial Inspections
of 3PLsb

1–19
Employees

20–99
Employees

100–499
Employees

4
2

4
2

6
3

500 or
more
Employees
8
4

4,140

1,620

1,818

1,248

8,826

2,070

810

909

624

4,413

648

536

552

464

2,200

31

Total

Value
Total Hours for Subsequent
Inspections of 3PLsb

1–19
Employees

20–99
Employees

100–499
Employees

500 or
more
Employees

Total

324

268

276

232

1,100

a

Total hours for inspections of WDDs equals the number of hours per inspection × the number of facilities
requiring inspections from Table 5.
b
Total hours for inspections of 3PLs equals the number of hours per inspection × the number of facilities requiring
inspections from Table 6.

Using the cost of labor for designated representatives at WDDs from Table 7, we
estimate that inspections of WDDs would cost facilities $1.24 million in year 1 and $0.62 million
every 3 years afterwards. Similarly, we estimate that inspections of 3PLs would cost facilities
$0.27 million in year 1 and $0.14 million every 3 years afterwards. The annualized costs of
participating in inspections over 10 years would equal $0.33 million at a 7 percent discount rate
and $0.31 million at a 3 percent discount rate.
c. Costs for States and AOs to Conduct Inspections
The costs for a state inspector or AO employee to conduct the inspection include the time
the state inspector or AO employee spends reading and evaluating the facility’s written
procedures, conducting the on-site inspection, and writing up the inspection report. We estimate
the time spent by state or AO compliance officers conducting inspections using information from
ORA in Table 24.
Table 24. Number of Hours Spent Conducting Inspections by States and AOs
Value
Hours per Initial Inspection
Hours per Subsequent Inspection
Total Hours for Initial
Inspectionsa
Total Hours for Subsequent
Inspectionsa

1–19
Employees

20–99
Employees

100–499
Employees

40
20

40
20

50
25

500 or
more
Employees
60
30

47,880

21,560

19,750

12,840

102,030

23,940

10,780

9,875

6,420

51,015

Total

a

Total hours for inspections equal the number of hours per inspection × the number of facilities requiring
inspections (the sum of the number of facilities requiring inspections from Table 5 and Table 6).

Using the costs of labor for state and AO compliance officers from Table 7, we estimate
that the cost to conduct initial inspections in year 1 would range from $5.97 million (if only state
employees conduct inspections) to $8.20 million (if only AO employees conduct inspections).
The cost to conduct subsequent inspections every three years after year 1 would range from
$2.99 million to $4.10 million. The annualized cost to conduct inspections would range from
$1.29 million to $1.77 million at a 7 percent discount rate and from $1.24 million to $1.70
million at a 3 percent discount rate.
While we assume that states and AOs would inspect facilities, if states and AOs are
unavailable, we would inspect facilities. We estimate our cost to inspect facilities would equal

32

around $59,000 per inspection, which is significantly higher than the estimated costs for states or
AOs. Therefore, if our assumption that states and AOs would inspect facilities is incorrect, then
we underestimate the costs of inspections.
6. Approved Organization Approval Costs
We expect to use approved organizations to inspect most facilities we license. Approved
organizations would not license facilities and would only assist us in determining whether
facilities meet the necessary licensing standards. To receive approval, approved organizations
would need to prepare and submit various materials to us, including statements containing basic
background information, policies, procedures, and documentation.
At least two entities have expressed interest to us to become approved organizations. In
the past, the HHS Centers for Medicare and Medicaid Services (CMS) approved 10 approved
organizations meeting CMS program requirements, with respect to suppliers of durable medical
equipment, prosthetics, orthotics, and supplies. We therefore assume that between 2 and 10
entities would apply for approval. We request comment on the number of organizations that
would apply.
Based on assumptions about the approval process in the regulatory impact analysis of a
previous rule on the Unique Device Identification System (Ref. [6]) and the hourly labor cost for
managers at AOs from Table 7, we assume it would take one manager 80 hours to complete the
initial approval process, for a cost of $0.01 million per organization in year 1. We also assume
that each AO would incur $0.25 million in executive and legal costs in year 1. The total cost of
the initial approval process would equal $0.26 million per organization.
AOs would also incur recurring executive and legal costs and reapplication costs after
year 1. We assume that each AO would incur executive and legal costs of $0.03 million annually
after year 1. In addition, AOs would reapply for approval every fifth year. We assume that the
reapplication process would take 20 hours to complete, for a cost of $2,565 per organization that
would recur every five years.
In Table 25, we estimate the stream of annual approval costs for AOs over time. The
annualized approval costs to approved organizations would range from $0.10 million to $0.51
million at a 7 percent discount rate and from $0.10 million to $0.48 million at a 3 percent
discount rate.
Table 25. Annual Approval Costs for Approved Organizations over Time ($ millions)
Year
0
1
2
3
4
5
6
7
8

Cost per AOa
$0.00
$0.26
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03
$0.03

Total Costs (Low)b
$0.00
$0.52
$0.05
$0.05
$0.05
$0.05
$0.06
$0.05
$0.05

33

Total Costs (High)c
$0.00
$2.60
$0.25
$0.25
$0.25
$0.25
$0.28
$0.25
$0.25

Year
9

Cost per AOa
$0.03

Total Costs (Low)b
$0.05

Total Costs (High)c
$0.25

a

Equals the sum of application costs and initial executive and legal costs (year 1), annual legal and executive costs
(years 2–10), and reapplication costs (years 5 and 10).
b
Equals cost per AO × 2 organizations.
c
Equals cost per AO × 10 organizations.

Though approved organizations would apply to become FDA approved organizations, we
expect that they would only do so if their expected profits from fees would be greater than their
expected costs of entering and staying in business. We expect that WDDs and 3PLs would bear
some of these approval costs because such costs would be passed on to them by approved
organizations. We request comment on this assumption.
7. State Costs to Establish or Revise Licensure Programs
To license WDDs and 3PLs, states would implement the proposed rule’s standards.
Implementing these standards would require some states to revise their laws and increase
communication and enforcement resources.
The proposed rule would not require that states pass new legislation or create or revise
regulations. We assume, however, that states would choose to update their programs through
statute or regulation so that they could continue to operate them under the proposed standards.
Updating state programs would likely require a revision to statutes, regulations, or both. We do
not know if states would address both WDD and 3PL licensure in the same legislation and
regulation but assume that states would have separate legislative and regulatory efforts for
WDDs and 3PLs. We request comment on this assumption.
In Table 26, we summarize our assumptions about the timing of legislative and regulatory
activity by states in response to the proposed rule, if finalized. We assume that legislative and
regulatory activity would follow the licensure schedule for WDDs (every 2 years) and 3PLs
(every 3 years). For our low estimates, we assume that fewer states would publish regulations in
earlier years than in later years. For our high estimates, we assume that more states would
publish regulations in earlier years than in later years.
Table 26. Number of States Acting on WDD and 3PL Legislation and Regulations by Year
Year
1
2
3
4
5
6
7

States for
WDDs
(Low)
41
0
6
0
3
0
0

States for
WDDs
(High)
36
0
7
0
4
0
0

States for
3PLs (Low)

States for
3PLs (High)

Total States
(Low)

Total States
(High)

19
0
0
12
0
0
9

14
0
0
14
0
0
9

60
0
6
12
3
0
9

50
0
7
14
4
0
9

We assume that states act on WDD legislation and regulations at the beginning of the first three two-year licensure
cycles and that states act on 3PL legislation and regulations at the beginning of the first three three-year licensure
cycles.

a. State Costs of Licensure Legislation and Regulations
34

To create and update state licensure laws, we expect that state attorneys would first
format and prepare legislation. We assume it would take an attorney from a state between 2 and
4 hours to format and prepare legislation and request comment on this assumption. Then, we
expect that attorneys from the program office, the legislature, and the governor’s office would
review the legislation. We assume that each of these three attorneys would spend between 0.5
and 2 hours reviewing the legislation and request comment on this assumption. Using the hourly
labor cost for state attorneys from Table 7, the total cost for attorneys to format, prepare, and
review legislation for a single state would range from $328 to $937.
Once the legislation is drafted, we expect that at least one person from each state
legislator’s office would read it. Using information from the National Conference of State
Legislatures, we estimate that the average state has 143 legislators. Using the hourly labor cost
for legislative staffers from Table 7 and assuming that it would take each legislative staffer
between 0.25 minutes to 0.75 minutes to read the legislative documents, the total cost for
legislative staffers to read proposed legislation for a single state would range from $1,773 to
$5,320. We request comment on our assumption regarding the time it would take legislative
staffers to read legislative documents.
If legislation is passed, we expect that states would change their licensure regulations to
conform to the standards under the proposed rule. State employees working on regulations in two
states indicated that it would take between 100 hours and 600 hours to prepare and review state
licensure regulations. Using the wage for state lawyers from Table 7, the total cost for a state to
prepare and review state licensure regulations would range from $9,370 to $56,220.
Based on these estimates, the total cost for a state to act on legislation and regulations for
WDDs or 3PLs in response to the proposed rule, if finalized, would range from $11,471 to
$62,477. Given the number of states acting on WDD and 3PL legislation and regulations in each
year from Table 26, the annualized costs of legislative and regulatory activity by states in
response to the proposed rule, if finalized, would range from $0.12 million to $0.60 million at a 7
percent discount rate and from $0.11 million to $0.56 million at a 3 percent discount rate.
b. State Program Costs of a Conforming Licensure Program
We understand that some states already operate licensure programs for both WDDs and
3PLs and incur costs beyond inspection costs. We assume that states already incur overhead
costs associated with operating these programs, such as invoicing, payment oversight, internal
reviews, reconciling accounts, conducting internal and external communications, non-payment
enforcement, standard operating procedures, regulatory support documents, and employee
training. We expect that states would modify or augment these processes in response to the
proposed rule. Changes to these processes would likely vary across states. We request detailed
comment on the costs that states may incur to change or expand support for their licensure
programs. We also request comment on the likelihood that states would choose to continue to
license following the implementation of the proposed rule, and how long it would take for states
to establish new licensure programs.
8. FDA Costs
a. Licensure Program Costs

35

As illustrated in Table 11, though we expect that states would license most WDDs and
3PLs, we would license some facilities. To license facilities, we would incur costs to create our
own licensure program. The costs of a licensure program would include the costs to process
applications, costs to conduct appeals of denied, suspended, or revoked licenses, costs to take
compliance or enforcement actions, and costs to review inspection reports from AOs.
As reflected in tables 10 and 11, FDA estimates that most states will establish
conforming licensure programs for WDDs and 3PLs by year 1 , while some states may take
additional time to establish these programs. We estimate that nearly all states will eventually set
up conforming licensure programs, however we recognize the possibility that it may take some
states additional time.
Based on proprietary data from the National Association of Boards of Pharmacy, 2020
Survey of Pharmacy Law, every state licenses/registers WDDs, whereas 31 states had laws or
pending laws to regulate 3PLs. FDA estimates that more states will be able to establish licensure
programs for WDDs than 3PLs within the first licensure periods following year 1 because more
states have experience with and currently license WDDs than license 3PLs. We request comment
on the likelihood that states would choose to continue to license following the implementation of
the proposed rule, and how long it would take for states to establish new licensure programs.
In Table 27, we summarize our assumptions about the time costs of running our licensure
program. Using the hourly labor cost for employees from the FDA Center for Drug Evaluation
and Research (CDER) from Table 7, we estimate that the average annual cost to FDA per license
application would range from $1,386 to $2,268 for WDD licenses and from $924 to $1,512 for
3PL licenses.17 To estimate the total costs of licensure applications to FDA in a given year, we
multiply the average annual cost per license application by the number of facilities we would
license in each year from Table 11.
Table 27. Time Cost to FDA per License Application
Value
Hours to Process Application
Expected Hours to Process Appeals of Denied Licensesa
Expected Hours to Process Appeals of Revoked or Suspended Licensesb
Expected Hours Related to Compliance or Enforcement Actionsc
Hours to Review Inspection Report
Expected Total Hours per Application

Low
Estimate
11.5
0
0
0
8
19.5

High
Estimate
11.5
2.2
3.6
6.6
8
31.9

a

We assume it would take 11 hours to process each appeal and that the probability that we deny a license would
range from 0 percent to 20 percent.
b
We assume it would take 72 hours to process each appeal and that the probability that we revoke or suspend a
license would range from 0 percent to 5 percent.
c
We assume it would take 33 hours to take compliance or enforcement actions on a facility and that the probability
that we take compliance or enforcement actions would range from 0 percent to 20 percent.

17

The average annual cost for FDA to review a WDD license application would equal the expected total hours per
application × the wage for a CDER employee from Table 7 ÷ 2-year licensure cycle. Similarly, the average annual
cost for FDA to review a 3PL license application would equal the expected total hours per application × the wage
for a CDER employee from Table 7 ÷ 3-year licensure cycle.

36

In addition to the time costs associated with each license, we expect that establishing and
operating a licensure program would also include some additional overhead costs. We use
internal budget information to estimate the additional costs of the licensure program over time.
In Table 28, we estimate the overhead costs of the licensure program over time. Note that we
expect that we would incur some of these costs before year 0. We include the net present value
of any costs incurred before year 0 in the total year 0 costs.
Table 28. Additional Costs to FDA Associated with the Licensure Program ($ millions)
Year 0
Costs
(7%)a
$0.80
$0.13
$0.40
$0.15
$0.28
$1.75

Cost
Information Technology
System to Issue License Certificates
Legal Review and Support
Monitoring of State Legislation and Regulations
User Fee Infrastructure
Total Cost
a

Year 0
Costs
(3%)a
$0.80
$0.13
$0.39
$0.14
$0.28
$1.74

Year 1
Costs

Year 2
Costs

$0.03
$0.03
None
$0.07
$0.28
$0.40

$0.03
None
None
None
$0.28
$0.31

Year 0 costs include the net present value of all costs incurred before year 0.

We estimate that the total annualized costs of our licensure program would range from
$0.82 million to $1.35 million at a 7 percent discount rate and from $0.77 million to $1.30
million at a 3 percent discount rate.
b. Approval Program Costs
We would approve organizations to conduct inspections of WDDs and 3PLs on our
behalf. To approve these organizations, we would incur costs to develop guidelines for the
approval program, costs to review AO applications, and costs to audit AOs.
We expect that we would incur costs related to setting up the approval program before
year 0. Using internal budget information, we estimate that the net present value of these costs in
year 0 would equal $0.07 million at a 7 percent discount rate and at a 3 percent discount rate. We
also estimate that we would incur costs of $0.57 million in year 1 related to setting up the
approval program.
Following our assumptions in Section F6, we assume that between 2 and 10 entities
would apply to be approved organizations. We would review applications and conduct initial
inspections of the AOs in year 1. We then would review renewal applications and audit AOs
every 5 years thereafter. We assume that the time to review an application and conduct an initial
inspection would range from 88 to 144 hours per AO. We also assume that the time to review a
renewal application and conduct an audit would range from 64 to 84 hours per AO. Using the
hourly labor cost for a CDER employee from Table 7, the total costs to review, inspect, and audit
AOs would range from $0.03 million to $0.20 million in year 1 and from $0.02 million to $0.12
million every 5 years thereafter.
The total annualized costs of the approval program would range from $0.16 million to
$0.21 million at a 7 percent discount rate and from $0.14 million to $0.18 million at a 3 percent
discount rate.

37

c. Costs of Training and Outreach
We expect that we would incur costs to train our staff and AOs to conduct inspections of
WDD and 3PL facilities. We also expect that we would incur costs to offer webinars and public
meetings to inform stakeholders about the new licensure standards. Using internal budget
information, we estimate the costs of training and outreach over time in Table 29. The total
annualized costs of training and outreach would equal $0.18 million at a 7 percent discount rate
and $0.16 million at a 3 percent discount rate.
Table 29. Costs to FDA of Training and Outreach over Time ($ millions)
Cost
Training Cost for FDA and AO Staff
Webinars
Public Meetings
Online Training Software
Total Cost
a

Year 0
Costs
(7%)a
$0.50
$0.46
$0.13
$0.05
$1.14

Year 0
Costs
(3%)a
$0.50
$0.44
$0.13
$0.05
$1.12

Year 1
Costs

Year 2
Costs

Year 3
Costs

None
$0.14
$0.03
None
$0.17

None
None
$0.03
None
$0.03

None
None
$0.07
None
$0.07

Year 0 costs include the net present value of all costs incurred before year 0.

d. Costs of the Reporting Database
As discussed in Section F2, we established a reporting database for WDDs and 3PLs in
2013 and we assume that year 1 is between 2024 and 2026. Although we have already
established this database, submitting data to the database is an explicit requirement of this
proposed rule. Therefore, we include the costs of establishing and maintaining the reporting
database in this analysis.
We estimate that we incurred an initial cost of $0.35 million to set up the reporting
database in 2013 and that the cost to maintain the reporting database is about $0.07 million in
subsequent years. Given these estimates, the annualized cost to establish and maintain the
reporting database would range from $0.28 million to $0.33 million at a 7 percent discount rate
and from $0.21 million to $0.23 million at a 3 percent discount rate.
9. Summary of Costs
In Table 30, we summarize the stream of monetized costs from the proposed rule. These
estimates include costs to WDDs, 3PLs, AOs, states, and FDA.
Table 30. Stream of Costs from the Proposed Rule over 10 Years ($ millions)
Year

Low Estimate (7%)

0a
1
2
3
4
5
6
7

$8.56
$27.82
$8.26
$8.05
$11.67
$7.67
$7.65
$11.39

High Estimate
(7%)
$9.64
$46.74
$13.97
$13.84
$18.83
$13.00
$12.90
$18.01

38

Low Estimate (3%)
$7.97
$27.82
$8.26
$8.05
$11.67
$7.67
$7.65
$11.39

High Estimate
(3%)
$8.75
$46.74
$13.97
$13.84
$18.83
$13.00
$12.90
$18.01

a

Year

Low Estimate (7%)

8
9

$7.54
$7.54

High Estimate
(7%)
$12.60
$12.60

Low Estimate (3%)
$7.54
$7.54

High Estimate
(3%)
$12.60
$12.60

Year 0 costs include the net present value of any costs incurred before year 0.

In Table 31, we estimate the discounted total costs of the proposed rule over 10 years.
Annualized costs would range from $13.21 million to $20.63 million at a 7 percent discount rate
and from $12.83 million to $20.10 million at a 3 percent discount rate. The annualized costs to
WDDs would range from $8.47 million to $12.90 million at a 7 percent discount rate and $8.35
million to $12.75 million at a 3 percent discount rate. The annualized costs to 3PLs would range
from $1.76 million to $2.73 million at a 7 percent discount rate and $1.74 million to $2.70
million at a 3 percent discount rate.
Table 31. Discounted Total Costs of the Proposed Rule over 10 Years ($ millions)
Value
Present Value (7%)
Present Value (3%)
Annualized Value (7%)
Annualized Value (3%)

Low Estimate
$99.30
$112.75
$13.21
$12.83

Primary Estimate
$127.17
$144.68
$16.92
$16.47

High Estimate
$155.04
$176.60
$20.63
$20.10

G. Distributional Effects
States charge application fees to facilities applying for licensure. States without
conforming licensure programs would lose revenue from these application fees. This revenue
would transfer from states back to facilities. Based on the average annual fee states charge for
licensure, we estimate that these annualized transfers would range from $0.09 million to $0.14
million at a 7 percent discount rate and from $0.08 million to $0.14 million at a 3 percent
discount rate. The transfers from states to WDDs would range from $0.05 million to $0.09
million at both a 7 percent discount rate and a 3 percent discount rate. The transfers from states
to 3PLs would range from $0.04 million to $0.05 million at both a 7 percent discount rate and a 3
percent discount rate.
We also expect that we would charge fees to facilities we license. As a result, at least
some, if not all, of the transfers between states and facilities would subsequently transfer to us. If
we would charge higher fees for licensure than states, then we would expect additional transfers
between facilities and us.
The proposed rule may also have implications for public health equity. Research suggests
that low income individuals or individuals without health insurance coverage may be
disproportionately impacted by diverted drugs (Ref. [1], [7]). We request comment on any health
equity impacts of this proposed rule.
H. International Effects
The licensing standards of the proposed rule would apply only to WDD and 3PL facilities
located in the United States. We therefore expect negligible effects, if any, on international trade

39

or international entities. We request comment on the effect, if any, on international trade and
international entities.
I. Uncertainty and Sensitivity Analysis
In Section E1, we discuss the possible benefits of the rule using cargo theft data. . In this
section, we use an alternative data source to estimate the benefits of this rule.
Our Office of Criminal Investigations releases press releases about criminal cases. We
collected information from press releases from criminal cases involving wholesale distributions
from 2009 and 2010.18 These press releases give information on indictments, convictions, and
sentences in criminal cases. We use this information to identify cases in which there was reason
to believe a domestic WDD or 3PL participated in drug diversion. We excluded any cases
involving scheduled drugs (that is, drugs with a high likelihood of abuse), because criminals
could easily sell these drugs illegally without diverting them through a WDD or 3PL.
From these data, we estimate that the value of diverted product in 2020 dollars in this
period ranged from $7.41 million in 2010 to $32.63 million in 2009. Following the same
assumptions used in Section E1, this alternative data source implies annual benefits that would
range from $29.49 million to $181.62 million. However, since press releases do not represent all
diversion schemes in the United States, these estimates likely underestimate the benefits of
reduced of drug diversion (while also likely overstating regulatory effectiveness and, in that
regard, overestimating benefits).
J. Analysis of Regulatory Alternatives to the Proposed Rule
1. Exercising Additional Enforcement Discretion
As discussed in Section C1, we intend to exercise enforcement discretion with respect to
3PLs for one additional year after the effective date of the regulation. Alternatively, we could
extend additional enforcement discretion for 3PLs and exercise enforcement discretion for
WDDs. Applying additional enforcement discretion would reduce compliance costs by shifting
them further in the future. It would also reduce costs if extending the compliance period would
allow facilities, states, and AOs to have enough time to meet standards in the proposed rule
before the first licensure cycle.
However, additional enforcement discretion would also reduce the benefits of the rule, as
the benefits and cost savings related to the new standards would also shift further in the future.
We present our primary estimates of the benefits and costs of exercising one additional year of
enforcement discretion for WDDs and 3PLs in Table 33. With this alternative, we would begin
to enforce the licensure standards in the proposed rule in year 2 (three years after we issue the
final regulations). We request comment on the impacts of extending further enforcement

18

We deliberately use pre-statutory data to inform our analysis. As we state in section D, the DSCSA was published
in 2013, and firms are very likely to have proactively changed their practices to meet the requirements described in
the DSCSA. It is difficult to disentangle trends that are attributable to the statute from trends that are not attributable
to the statute. Therefore, we believe trend analysis would be inappropriate in this case.

40

discretion on the benefits and costs of the proposed rule beyond the impacts of shifting benefits
and costs in time.
2. Requiring Drug Testing
In another alternative to the proposed rule, we could require designated representatives
and facility managers to undergo initial, random, and for-cause drug screening tests.
Implementing drug screenings would impose an initial one-time cost to test all designated
representatives and facility managers and annual costs to conduct random and for-cause drug
tests.
We find that some states already require designated representatives and facility managers
to undergo drug testing. In Table 32, we estimate that number of WDD and 3PL facilities that
would employ drug testing under this regulatory alternative. We also estimate the number of
employees that would undergo drug testing initially and annually, using assumptions from
Section F about the number of designated representatives and facility managers at facilities by
employment size.
Table 32. Number of Facilities with New Drug Testing Standards under the Regulatory
Alternatives and the Number of Drug Tests Conducted
Value
Number of WDD Facilities with
New Standards
Number of 3PL Facilities with New
Standards
Drug Tests in Year 1a
Drug Tests Annually After Year 1a,b

1–19
Employees

20–99
Employees

100–499
Employees

500 or More
Employees

1,039

412

297

159

157

132

90

55

3,588
897

1,632
408

2,709
677

1,926
482

a

We assume that each facility employees 1 designated representative. We also assume that facilities with fewer than
100 employees employ 2 managers, facilities with between 100 and 499 employees employ 6 managers, and
facilities with 500 or more employees employ 8 managers.
b
We assume that the probability of an employee receiving a random or for-cause drug test in a given year is 25
percent, based on recommendations from the Department of Transportation (Ref. [8]).

Using information from an internet search, we estimate that the average fee for preemployment drug testing is $45. We also estimate that it would take approximately 0.25 hours
for each employee to complete all activities involved with a drug test. Using the hourly labor
costs for designated representatives and facility managers at WDDs and 3PLs from Table 7, we
estimate that the average cost of drug testing would equal $79 per employee.
Given the estimates in Table 32 and the cost of drug testing per employee, we estimate
that the annualized cost of drug testing would equal $0.21 million at a 7 percent discount rate and
$0.20 million at a 3 percent discount rate. We present the total benefits and costs of this
regulatory alternative in Table 33. However, we note that these estimates do not account for any
benefits associated with drug testing.
3. Creating a Minimum Standard of Licensure

41

We could also consider the standards in the rule as minimum standards rather than as
uniform standards. If the rule specified minimum standards, states could choose to have stricter
standards than the ones in the rule. We do not expect that a minimum standard would have
different costs than the proposed uniform standard.
Cost savings under a minimum standard would likely be lower than under a uniform
standard. Some states could continue imposing standards that exceed national standards,
including more frequent licensure renewal, examinations for designated representatives, and selfassessments for designated representatives. We expect that a minimum standard would reduce
the cost savings from the proposed rule. We present our primary estimates of the benefits and
costs of this regulatory alternative in Table 33.
To the extent that WDDs and 3PLs would experience cost savings from uniform national
licensing standards, this alternative approach of minimum standards would diminish these cost
savings. We request comment on the potential benefits of state standards not included in this
rulemaking.
4. Summary of Regulatory Alternatives
In Table 33, we summarize the annualized benefits, costs, and net benefits of these
alternatives to the proposed rule. These estimates only include any benefits and costs that we can
quantify, and do not include any qualitative benefits or costs of the proposed rule.
Table 33. Summary of Annualized Benefits and Costs of Alternatives to the Proposed Rule ($
millions)
Alternative
Exercising Additional
Enforcement Discretiona
Proposed Rule
Requiring Drug Testing
Creating a Minimum
Standard of Licensure

Benefits
(7%)

Costs
(7%)

Net
Benefits
(7%)

Benefits
(3%)

Costs
(3%)

Net
Benefits
(3%)

$9.15

$12.93

($3.78)

$9.55

$12.85

($3.31)

$10.66
$10.66

$16.92
$17.13

($6.26)
($6.47)

$10.89
$10.89

$16.47
$16.67

($5.58)
($5.78)

$7.00

$16.92

($9.92)

$7.14

$16.47

($9.32)

a

III.

Initial Small Entity Analysis

The Regulatory Flexibility Act requires Agencies to analyze regulatory options that
would minimize any significant impact of a rule on small entities. Because the proposed rule
could impose significant, although uncertain, new economic burdens on small entities, we find
that the proposed rule will have a significant economic impact on a substantial number of small
entities. This analysis, as well as other sections in this document, serves as the Initial Regulatory
Flexibility Analysis, as required under the Regulatory Flexibility Act.
A. Description and Number of Affected Small Entities
We estimate the number of affected small entities using data from Dun & Bradstreet. In
Table 34, we describe the small WDD firms that this proposed rule would impact. The Small

42

Business Administration defines a small WDD firm as a firm with fewer than 250 employees.19
Under this definition, 90 percent of affected WDD firms are small businesses.
Table 34. Description of Small WDD Firms
Employee Size
1–19 Employees
20–99 Employees
100–249 Employees
All Small

Number of Firms

Percent of Firms

989
223
74
1,286

69.31%
15.63%
5.19%
90.12%

Average Annual
Receipts ($
millions)
$3.66
$21.72
$140.95
$14.69

Average Number
of Establishments
per Firm
1.03
1.17
1.45
1.08

In Table 35, we describe the small 3PL firms this proposed rule would impact. The Small
Business Administration defines a small 3PL firm as a firm with revenues less than $15
million.20 Under this definition, 66 percent of affected 3PL firms are small businesses.
Table 35. Description of Small 3PL Firms
Revenue Size
Under $1 million
$1 to $5 million
$5 to $15 million
All Small

Number of Firms

Percent of Firms

122
49
22
193

41.78%
16.78%
7.53%
66.10%

Average Annual
Receipts ($
millions)
$0.23
$2.40
$9.62
$1.85

Average Number
of Establishments
per Firm
1.00
1.04
1.09
1.02

B. Description of the Potential Impacts of the Rule on Small Entities
To calculate net costs of the proposed rule, if finalized, as it relates to small firms, we
consider cost savings to WDDs and 3PLs from reduced frequency of licensure and reducing state
licensing standards in some states; and cost savings to 3PLs from fewer ship-to licenses
(estimated in Section II.E). We consider costs to WDDs and 3PLs from reading and
understanding the rule, reporting to FDA, undergoing routine inspections, writing and revising
standard operating procedures, conducting background checks, and increased frequency of
licensure in one state; and costs to WDDs to furnish surety bonds to their state licensing
authority to obtain or renew their licenses (estimated in Section II.F). We also consider transfers
from states to WDDs and 3PLs in the form of licensure application fees (estimated in Section
II.G).
We estimate that the net annualized costs21 to WDDs would range from $7.07 million to
$8.06 million at a 7 percent discount rate and from $6.80 million to $7.93 million at a 3 percent
Based on NAICS Code 424210, “Drug and Druggists’ Sundries Merchant Wholesalers.” Note that we use this
NAICS Code for our regulatory flexibility analysis and the NAICS Code 4240A2, “Merchant Wholesalers,
Nondurable Goods,” for our labor cost estimates because wage data is unavailable for NAICS Code 424210. We
assume that the wage for NAICS Code 4240A2 is the same as the wage for NAICS Code 424210.
20
Based on NAICS Code 488500, “Freight Transportation Arrangement.”
21
Where net annualized costs to WDDs equal annualized costs to WDDs minus annualized transfers to WDDs
minus annualized cost savings to WDDs.
19

43

discount rate. We summarize the annualized cost savings, costs, and distributional effects of the
proposed rule, if finalized, for WDDs in Table 36.
Table 36. Annualized Cost Savings, Costs, and Distributional Effects of the Proposed Rule for
WDDs ($ millions)
Value
Annualized Cost Savings
Annualized Costs
Annualized Transfers
Annualized Net Costs

Low Estimate
(7%)
$0.36
$8.47
$0.05
$8.06

High Estimate
(7%)
$5.74
$12.90
$0.09
$7.07

Low Estimate
(3%)
$0.37
$8.35
$0.05
$7.93

High Estimate
(3%)
$5.87
$12.75
$0.09
$6.80

To estimate the average annualized net cost per firm, we divide the net annualized costs
by the total number of WDD firms. Then, the average annualized net cost per WDD firm would
range from $4,957 to $5,64522 at a 7 percent discount rate. Similarly, the average annualized net
cost per WDD firm would range from $4,764 to $5,558 at a 3 percent discount rate. In Table 37,
we present the annualized net costs per firm as a percent of average annual revenue. We find that
quantified net costs represent less than 1 percent of annual revenues for small WDDs.
Table 37. Annualized Net Costs per Firm as a Percent of Average Annual Revenue for Small
WDD Businesses
Employee Size
1–19 Employees
20–99 Employees
100–249 Employees
All Small

Low Estimate
(7%)
0.14%
0.02%
0.00%
0.03%

High Estimate
(7%)
0.15%
0.03%
0.00%
0.04%

Low Estimate
(3%)
0.13%
0.02%
0.00%
0.03%

High Estimate
(3%)
0.15%
0.03%
0.00%
0.04%

Similarly, we estimate that the net annualized costs23 to 3PLs would range from $1.29
million to $1.58 million at a 7 percent discount rate and from $1.25 million to $1.56 million at a
3 percent discount rate. We summarize the annualized cost savings, costs, and distributional
effects of the proposed rule, if finalized, for 3PLs in Table 38.
Table 38. Annualized Cost Savings, Costs, and Distributional Effects of the Proposed Rule for
3PLs ($ millions)
Value
Annualized Cost Savings
Annualized Costs
Annualized Transfers
Annualized Net Costs

Low Estimate
(7%)
$0.14
$1.76
$0.04
$1.58

High Estimate
(7%)
$1.38
$2.73
$0.05
$1.29

22

Low Estimate
(3%)
$0.14
$1.74
$0.04
$1.56

High Estimate
(3%)
$1.40
$2.70
$0.05
$1.25

These values equal $7,073,649 ÷ 1,427 and $8,055,879 ÷ 1,427, respectively.
Where net annualized costs to 3PLs equal annualized costs to 3PLs minus annualized transfers to 3PLs minus
annualized cost savings to 3PLs.
23

44

To estimate the average annualized net cost per firm, we divide the net annualized costs
by the total number of 3PL firms. Then, the average annualized net cost per 3PL firm would
range from $4,424 to $5,40724 at a 7 percent discount rate. Similarly, the average annualized net
cost per 3PL firm would range from $4,282 to $5,347 at a 3 percent discount rate. In Table 39,
we present the annualized net costs per firm as a percent of average annual revenue. We find that
quantified net costs represent over 1 percent of annual revenues for the smallest 3PLs and less
than 1 percent for 3PLs with over $1 million in average annual revenue.
Table 39. Annualized Net Costs per Firm as a Percent of Average Annual Revenue for Small
3PL Businesses
Revenue Size
Under $1 million
$1 to $5 million
$5 to $15 million
All Small

Low Estimate
(7%)
1.91%
0.18%
0.05%
0.24%

High Estimate
(7%)
2.34%
0.23%
0.06%
0.29%

Low Estimate
(3%)
1.85%
0.18%
0.04%
0.23%

High Estimate
(3%)
2.31%
0.22%
0.06%
0.29%

These estimates only include the direct costs to WDDs and 3PLs. We expect that AOs
and states would pass some of the costs of complying with this proposed rule onto WDDs and
3PLs through inspection fees or licensure fees. Our estimates in Table 37 and Table 39 likely
underestimate the burden of the proposed rule on small businesses.
C. Alternatives to Minimize the Burden on Small Entities
In Section II.J, we analyze three alternative policies. According to the Small Business
Administration definition, approximately 90 percent of the affected WDD firms and 66 percent
of the 3PL firms are small entities. Therefore, those alternatives that minimize the burden on
WDDs and 3PLs would also minimize the burden on the subset of small WDDs and 3PLs.
Specifically, exercising one additional year of enforcement discretion would reduce the costs to
small businesses. However, it would also reduce cost savings to small businesses.

IV.

Appendix: Adverse Events from Drug Diversion or Counterfeiting

In this section, we provide examples of suspected and documented adverse events
resulting from drug diversion or counterfeiting that the uniform licensing standards for WDDs
and 3PLs that we are proposing potentially could have prevented. We rely on (1) reported
adverse events to CDER’s Office of Surveillance and Epidemiology (OSE) and (2) information
from documented cases of drug diversion and counterfeiting.
A. Evidence from Suspected Cases of Drug Diversion or Counterfeiting
One approach to estimating benefits is to look at the reported adverse events that may be
associated with drug diversion or counterfeiting. Each year, OSE evaluates more than 1.5 million
adverse event reports associated with the use of an FDA-regulated drug, biologic, medical
24

These values equal $1,291,875 ÷ 292 and $1,578,802 ÷ 292, respectively.

45

device, dietary supplement, or cosmetic submitted by health professionals and consumers to
FDA's MedWatch program (Ref. [9]). By evaluating the cases of suspected prescription drug
counterfeiting or tampering reported to us between 2009 and 2014, we identified 140 adverse
event reports between 2009 and 2014 that could plausibly have resulted from drug diversion or
counterfeiting.25
In Table 40, we present examples of these adverse events. We likely receive few adverse
event reports relative to the actual number of adverse events consumers experience from diverted
drugs. Moreover, we consider that these events might not represent the total adverse events that
may have arisen due to drug diversion or counterfeit drugs.
Table 40. Suspected Adverse Events from Drug Diversion or Counterfeiting
Drug

Adverse Event

Exalgo (hydromorphone
hydrochloride extendedrelease)

Gastrointestinal
bleeding

Cymbalta (duloxetine)

Ineffective drug

Cymbalta (duloxetine)

Ineffective drug;
illness

Protonix (pantoprazole
sodium)
Atripla (efavirenz/
emtricitabine/
tenofovir)
Topamax (topiramate)

Ineffective drug

Suspected
Cause
Product
tampering
Product
tampering
Product
counterfeit
Product
counterfeit

Additional Details

Year Reported
to FDA

Tablet appeared to
be cut open

2014

Empty capsules

2012

Unusual appearance
of capsules
Change in
appearance of tablets

2011
2011

Ineffective drug

Product
counterfeit

Change in
appearance of pills

2011

Ineffective drug;
body rash and hives

Product
counterfeit

Change in
appearance of tablets

2009

B. Evidence from Documented Cases of Drug Diversion or Counterfeiting
In addition to adverse event reports, we can additionally glean information about adverse
events resulting from drug diversion or counterfeiting from public sources, including news
articles, press releases, and congressional testimonies.
For some of these cases, we can identify a direct link between a drug diversion or
counterfeiting event and an adverse public health outcome. In Table 41, we describe notable
cases of drug diversion or counterfeiting resulting in adverse events that the uniform standards
we propose in the rule could potentially have prevented.

25

The initial reporter provides a narrative describing the adverse event. We rely on these narratives to identify
adverse events that potentially resulted from drug diversion or counterfeiting. We do not disclose these narratives in
the publicly available FDA Adverse Event Reporting System (FAERS) Quarterly Data files or the FAERS Public
Dashboard.

46

Table 41. Notable Cases of Drug Diversion or Counterfeiting Resulting in Adverse Events
Drug(s)

Description of Case

Counterfeit, misbranded, and
Avastin
adulterated versions of Avastin
(bevacizumab) from abroad entered the U.S.
supply chain (Ref. [10], [11], [12])
Levemir
(insulin
detemir)

Epogen
(epoetin alfa)

Serostim and
Nutropin AQ
(somatropin)

Procrit
(epoetin alfa)

Diverters sold stolen vials of
Levemir to drug wholesaler, and
consumers purchased these drugs
through the legitimate supply chain
(Ref. [14])
Diverters purchased and relabeled
“low-dose” Epogen as “high-dose”
Epogen and reintroduced the
mislabeled drugs into the legitimate
supply chain (Ref. [15])
An unlicensed wholesale drug
distributor diverted hundreds of
boxes of these drugs in interstate
commerce, some purchased from
patients in California (Ref. [16])
Counterfeiters introduced drug that
contained nonsterile tap water in
place of the active ingredient into
the legitimate supply chain (Ref.
[15])

Adverse Event(s)
One cancer patient became
nauseated and feverish
following a drug infusion
containing mold (Ref.
[13])

Year of Event

2011

Two patients reported
potentially fatal blood
sugar levels and others
became ill

2009

Mislabeled low dose drug
did not provide effective
treatment for one patient
recovering from a liver
transplant

2002

One child was harmed by
counterfeit Nutropin

Unknown26

Counterfeit drug did not
provide effective
treatment for one cancer
patient

1998

In Table 42, we summarize additional cases of drug diversion and counterfeiting that
potentially could have contributed to adverse public health outcomes. Although we are not aware
of sources that directly link these cases to adverse events, based on the details of each case, it is
plausible that unreported adverse events could have occurred. We request information on any
additional cases of drug diversion or counterfeiting that may have contributed to adverse events
in patients.
Table 42. Other Notable Cases of Drug Diversion or Counterfeiting
Drug(s)
Xanax
(alprazolam)
HIV
pharmaceuticals

26

Description of Case
A counterfeiter manufactured 4.3 million counterfeit pills (with
controlled substances purchased abroad) and shipped them
nationwide, earning $2.1 million in profit (Ref. [17])
Diverters stole drugs intended for indigent HIV patients from the
Washington, D.C. Department of Health Pharmacy Warehouse; a
Louisiana pharmacist purchased and dispensed some of these drugs
to patients (Ref. [18])

This diversion scheme occurred between 2000 and 2002 (Ref. [16]).

47

Timing of
Case
2017–2018

2013

Drug(s)

Rx oncology drugs

Oncology and
cosmetic drugs

HIV
pharmaceuticals

Rx medications

Description of Case
A pharmacist in California purchased unapproved versions of
drugs such as Avastin, Eloxatin, Gemzar, Neupogen, Rituxan,
Taxotere, and Zometa from a foreign distributor and supplied the
drugs to doctors (Ref. [19])
An unlicensed Virginia wholesale drug distributor purchased
unapproved drugs intended for foreign markets for resale in the
U.S. and distributed more than 17,000 units of these drugs to
physicians nationwide; diverters did not follow refrigeration
protocols for at least some of these drugs while in transit (Ref.
[20], [21])
Pharmacists in New York purchased over $275 million in black
market, “medically worthless” drugs on behalf of shell companies
and resold the drugs to patients (Ref. [22], [23])
As part of a $50 million drug diversion scheme, diverters
purchased and distributed drugs from unlicensed suppliers that had
unlawfully purchased the drugs from patients; pharmacies that
received the drugs reported bottles containing wrong drugs,
incorrect dosage information, and foreign objects (Ref. [24])

V.

Timing of
Case
2010–2011

2009–2013

2008

2006–2009

References

[1] E. A. Blackstone, J. P. Fuhr and S. Pociask, "The Health and Economic Effects of
Counterfeit Drugs," American Health & Drug Benefits, vol. 7, no. 4, pp. 216-224, Jun
2014.
[2] Thomson Reuters, "Westlawnext," 2014. [Online]. Available: wwww.westlawnext.com.
[Accessed 10 June 2014].
[3] E. A. Gallenagh and L. F. Hirsch, "Title II – Licensure of Wholesale Distributors and
3PL’s: Where does FDA stand, where do states stand, what about VAWD, and what can
you do about it?," 15 November 2017. [Online]. Available: https://www.fdli.org/wpcontent/uploads/2017/11/DQSA-Hrisch-B.pdf. [Accessed 19 August 2021].
[4] Eastern Research Group, "Foreign and Domestic Establishment Registration and Listing:
Requirements for Human Drugs, Certain Biological Drugs, and Animal Drugs," 2005.
[5] Eastern Research Group, "Evaluation of Recordkeeping Costs for Food Manufacturers,"
2007.
[6] Food and Drug Administration, "Unique Device Identification System, Proposed Rule
Regulatory Impact Analysis," 2013.

48

[7] T. Kelesidis, I. Kelesidis, P. I. Rafailidis and M. E. Falagas, "Counterfeit or substandard
antimicrobial drugs: a review of the scientific evidence," Journal of Antimicrobial
Chemotherapy, vol. 60, no. 2, p. 214–236, Aug 2007.
[8] Department of Transportation, "2014 DOT Random Testing Rates," [Online]. Available:
http://www.dot.gov/odapc/random-testing-rates. [Accessed 15 August 2014].
[9] Food and Drug Administration, "Office of Surveillance and Epidemiology (OSE) Divisions," 21 May 2018. [Online]. Available: https://www.fda.gov/about-fda/center-drugevaluation-and-research-cder/office-surveillance-and-epidemiology-ose-divisions.
[Accessed 18 February 2020].
[10] NBC News, "Fake Avastin contained several chemicals, no drug," 28 February 2012.
[Online]. Available: http://www.nbcnews.com/id/46559621/ns/health-cancer/t/fakeavastin-contained-several-chemicals-no-drug. [Accessed 10 February 2020].
[11] CBS News, "Counterfeit cancer drug Avastin circulating in U.S., company warns," 15
February 2012. [Online]. Available: https://www.cbsnews.com/news/counterfeit-cancerdrug-avastin-circulating-in-us-company-warns/. [Accessed 10 February 2020].
[12] Department of Justice, U.S. Attorney's Office, Eastern District of Missouri, "Turkish Man
Sentenced For Smuggling Counterfeit Cancer Drugs," 28 October 2014. [Online].
Available: https://www.justice.gov/usao-edmo/pr/turkish-man-sentenced-smugglingcounterfeit-cancer-drugs. [Accessed 10 February 2020].
[13] Partnership for Safe Medicines, "Daniel Burke Shares His Perspective On The Danger
Fake Online Pharmacies Pose At Interchange 2014," 2 December 2014. [Online].
Available: https://www.safemedicines.org/2014/12/daniel-burke-shares-his-perspective-onthe-danger-fake-online-pharmacies-pose-at-interchange-2014-12-2-14.html. [Accessed 10
February 2020].
[14] U.S. Congress, "Proceedings and Debates of the 112th Congress, Second Session, House of
Representatives (vol. 158, no. 97)," Congressional Record, p. H3992, 26 June 2012.
[15] U.S. Congress, "Sick Crime: Counterfeit Drugs in the United States (Hearing before the
Subcommittee on Criminal Justice, Drug Policy, and Human Resources on the Committee
on Government Reform, House of Representatives, 109th Congress, First Session)," 1
November 2005. [Online]. Available: https://www.govinfo.gov/content/pkg/CHRG109hhrg30672/html/CHRG-109hhrg30672.htm. [Accessed 10 February 2020].
[16] South Florida Business Journal, "Miami drug distributor sentenced," 18 February 2010.
[Online]. Available:

49

https://www.bizjournals.com/southflorida/stories/2010/02/15/daily39.html. [Accessed 10
February 2020].
[17] Department of Justice, U.S. Attorney's Office, Central District of Illinois, "Champaign Man
Sentenced to 13 Years in Prison for Trafficking Millions of Counterfeit Xanax Pills on
Darknet, Money Laundering," 6 January 2020. [Online]. Available:
https://www.justice.gov/usao-cdil/pr/champaign-man-sentenced-13-years-prisontrafficking-millions-counterfeit-xanax-pills. [Accessed 10 February 2020].
[18] Department of Justice, U.S. Attorney's Office, Middle District of Louisiana, "Louisiana
Pharmacist Convicted of Trafficking and Selling Stolen Medication," 22 August 2018.
[Online]. Available: https://www.justice.gov/usao-mdla/pr/louisiana-pharmacist-convictedtrafficking-and-selling-stolen-medication. [Accessed 10 February 2020].
[19] Department of Justice, U.S. Attorney's Office, Southern District of California, "Alvarado
Pharmacy And Its Owner Ordered To Repay Medicare Over $1 Million," 21 February
2014. [Online]. Available: https://www.justice.gov/usao-sdca/pr/alvarado-pharmacy-andits-owner-ordered-repay-medicare-over-1-million. [Accessed 10 February 2020].
[20] Department of Justice, U.S. Attorney's Office, Eastern District of Virginia, "Supplier Of
Non-FDA-Approved Chemotherapy And Cosmetic Drugs Sentenced To 15 Months," 6
June 2014. [Online]. Available: https://www.justice.gov/usao-edva/pr/supplier-non-fdaapproved-chemotherapy-and-cosmetic-drugs-sentenced-15-months. [Accessed 10 February
2020].
[21] Department of Justice, U.S. Attorney's Office, Eastern District of Virginia, "Illegal Drug
Company Gallant Pharma And Co-Founder Sentenced," 7 May 2014. [Online]. Available:
https://www.justice.gov/usao-edva/pr/illegal-drug-company-gallant-pharma-and-cofounder-sentenced. [Accessed 10 February 2020].
[22] C. Campanile, "Four busted in $150M HIV/AIDS-Medicaid drug scam," New York Post, 4
April 2012. [Online]. Available: https://nypost.com/2012/04/04/four-busted-in-150mhivaids-medicaid-drug-scam. [Accessed 10 February 2020].
[23] New York State Office of the Attorney General, "A.G. Schneiderman Announces
Sentencing Of Long Island Pharmacist Of Up To 24 Years In Prison For Selling BlackMarket HIV Medications," 26 October 2016. [Online]. Available: https://ag.ny.gov/pressrelease/2016/ag-schneiderman-announces-sentencing-long-island-pharmacist-24-yearsprison. [Accessed 10 February 2020].
[24] Department of Justice, U.S. Attorney's Office, Middle District of Tennessee, "Former
President of Cumberland Distribution, Inc. Sentenced to 15 Years in Federal Prison for $50

50

Million Drug Diversion Scheme," 17 July 2018. [Online]. Available:
https://www.justice.gov/usao-mdtn/pr/former-president-cumberland-distribution-incsentenced-15-years-federal-prison-50. [Accessed 20 February 2020].
[25] Partnership for Safe Medicines, "Counterfeit Drugs: A Dangerous Threat to American
Patients Fact Pack," 2015. [Online]. Available: https://www.safemedicines.org/wpcontent/uploads/2015/03/PSM-book6_sm.pdf. [Accessed 2020 February 2020].
[26] Partnership for Safe Medicines, "Counterfeit Drugs in America: Crimes, Victims &
Solutions (Fact Pack, 2nd edition)," 2017. [Online]. Available:
https://www.safemedicines.org/wp-content/uploads/PSM_FP2_footnotes_secure-1.pdf.
[Accessed 10 February 2010].
[27] U.S. Department of Health and Human Services, "Guidelines for Regulatory Impact
Analysis," 12 January 2017. [Online]. Available: https://aspe.hhs.gov/reports/guidelinesregulatory-impact-analysis. [Accessed 19 August 2021].

51