Henry Schein 2014 Annual Report Download - page 55

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The Federal Drug Quality and Security Act of 2013 brings about significant changes with respect to
pharmaceutical supply chain requirements and pre-empts state law. Title II of this measure, known as the Drug
Supply Chain Security Act (“DSCSA”), will be phased in over 10 years, and is intended to build a national
electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the United
States. The law began to take effect in January 2015, and on that date specific product tracing requirements for
manufacturers, wholesalers, repackagers and dispensers (e.g., pharmacies) of prescription drugs took effect,
although the FDA, in a Final Guidance issued on December 23, 2014, stated that in order to minimize possible
disruptions in the distribution of prescription drugs in the United States, it would not take action for noncompliance
with these track and trace requirements prior to May 1, 2015. These new product tracing requirements replace the
former FDA drug pedigree requirements and pre-empt state requirements that are inconsistent with, more stringent
than, or in addition to, the DSCSA requirements. Also in January 2015, the DSCSA required manufacturers and
wholesale distributors to have systems in place by which they can identify whether a product in their possession or
control is a “suspect” or “illegitimate” product, and handle it accordingly.
The DSCSA also establishes certain requirements for the licensing and operation of prescription drug
wholesalers and third party logistics providers (“3PLs”), and includes the creation of national wholesaler and 3PL
licenses in cases where states do not license such entities. The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping, storage and handling of
prescription drugs. Wholesalers and 3PLs are also required to submit annual reports to the FDA beginning on
January 1, 2015, which include information regarding each state where the wholesaler or 3PL is licensed, the name
and address of each facility and contact information. According to FDA guidance, states are pre-empted from
imposing any licensing requirements that are inconsistent with, less stringent than, directly related to, or covered by
the standards established by Federal law in this area. Current state licensing requirements will likely remain in
effect until the FDA issues new regulations as directed by the DSCSA.
We are in the process of analyzing the impact of the DSCSA on our business.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of computer software intended for use in
health care settings, and has developed policies on regulating clinical decision support tools and other types of
software as medical devices. Certain of our businesses involve the development and sale of software and related
products to support physician and dental practice management, and it is possible that the FDA or foreign
government authorities could determine that one or more of our products is a medical device, which could subject
us or one or more of our businesses to substantial additional requirements with respect to these products.
Certain of our businesses involve access to personal health, medical, financial and other information of
individuals, and are accordingly directly or indirectly subject to numerous federal, state, local and foreign laws and
regulations that protect the privacy and security of such information, such as the privacy and security provisions of
the federal Health Insurance Portability and Accountability Act of 1996, as amended, and implementing regulations
(“HIPAA”). HIPAA requires, among other things, the implementation of various recordkeeping, operational,
notice and other practices intended to safeguard that information, limit its use to allowed purposes and notify
individuals in the event of privacy and security breaches. Failure to comply with these laws and regulations can
result in substantial penalties and other liabilities.
In addition, federal initiatives are providing a program of incentive payments available to certain health care
providers involving the adoption and use of certain electronic health care records systems and processes. The
initiative includes providing, among others, physicians and dentists, with financial incentives if they meaningfully
use certified electronic health record technology (“EHR”) in accordance with applicable requirements. In addition,
Medicare-eligible providers that fail to timely adopt certified EHR systems and meet “meaningful use”
requirements for those systems in accordance with regulatory requirements are to be subject to cumulative
Medicare reimbursement reductions, which reductions for eligible health professionals (including physicians and
dentists) began on January 1, 2015. Qualification for the incentive payments requires the use of EHRs that have
certain capabilities for meaningful use pursuant to standards adopted by the Department of Health and Human
Services. Initial (“Stage 1”) standards addressed criteria for periods beginning in 2011. CMS has also issued a
final rule with more demanding “Stage 2” criteria for periods beginning in 2014 for eligible health professionals
(including physicians and dentists).