June 01, 2013

Testing the Limits on Drug Product Stewardship

Amy P. McMorrow

On July 24, 2012, the Board of Supervisors of Alameda County, California, unanimously adopted the “Alameda County Safe Drug Disposal Ordinance” (the Ordinance), which is the first mandatory pharmaceutical take-back program in the country to impose financial responsibility for collection and disposal of unused or expired medications solely on the producers of those medications. The pharmaceutical industry is paying attention.

Interest in take-back programs for the collection of unused or expired medications is on the rise, and states and local jurisdictions across the country are looking for creative ways to keep medications out of landfills and waterways, navigate the complex web of regulations imposed by state and federal agencies, and fund such programs. Most programs that have been developed or proposed to date are voluntary; many are operated by federal, state, or local government agencies, and some are funded by private industry. By contrast, Alameda County’s Ordinance places the burden of collection and disposal squarely on the shoulders of pharmaceutical companies that produce drugs sold in Alameda County. It not only requires those producers to establish, operate, and market a “producer-financed and managed take-back program,” it prohibits such producers from passing along costs of the program to consumers, thereby forcing internalization of costs. Also known as “extended producer responsibility,” this mandatory form of product stewardship shifts responsibility for postconsumer management of products away from the public sector and back to the producers of those products.

In the case of Alameda County, this attempt at burden shifting is made even clearer by the fact that the County already offered a drug take-back program to its citizens prior to enactment of the Ordinance. The County’s preexisting program provides about thirty drop-off locations throughout the County and is funded by the County through local taxpayers, at a reported cost of about $330,000 annually. By passage of the Ordinance, the County is now plainly attempting to impose the cost of expanding, operating, marketing, and overseeing that program on the pharmaceutical industry.

In December 2012, a coalition of producers impacted by the Ordinance filed suit in the Northern District of California seeking declaratory and injunctive relief based, first and foremost, on the allegation that the Ordinance violates the Dormant Commerce Clause of the United States Constitution. Pharmaceutical Research and Manufacturers of America et al v. Alameda County, California et al, No. 3:12-cv-06203-RS (N.D. Ca. filed December 7, 2012). The plaintiffs offer three key supporting reasons:

First, [the Ordinance] directly regulates and burdens interstate commerce and its primary purpose and clear effect is to shift the costs of a local regulatory program directly onto interstate commerce and out-of-county consumers. Second, the Ordinance discriminates against interstate commerce by targeting interstate commerce and products delivered from outside the County for burdens. Finally, the Ordinance favors local interests by deliberately shifting costs away from local consumers and taxpayers and onto drug manufacturers and pharmaceutical consumers nationwide.

Complaint at para. 3, No. 3:12-cv-06203-RS.

Likening the Ordinance to an effort to require the news industry to pay for local paper recycling programs, the plaintiffs argue that through this type of regulation, “[l]ocalities would be authorized to get something for nothing, simply by free-riding on interstate commerce and transferring the financial burdens to out-of-state consumers.” Id. at para. 5.

The plaintiffs also take issue with the added liability imposed upon them by virtue of Alameda County’s Ordinance, or others like it. Requiring producers to manage the collection, storage, and disposal of pharmaceutical waste items forces them to take on liability associated with those activities, for waste they have not generated. Further, each producer must bear not only the liabilities associated with the products it has produced, but for other products produced by other manufacturers as well, and anything else that may be improperly left at the collection sites by users of the program (including controlled substances). Id. at para. 30.

The defendants have responded that the ordinance “does not burden interstate commerce and even if it does so, any such burden is plainly outweighed by important considerations of the health, safety and protection of the interests of the citizens of the County.” Answer at para. 50, No. 3:12-cv-06203-RS. Moreover, the defendants state that enactment of the ordinance was “required by conditions existing in the County of Alameda” and that it was a “reasonable exercise of the police power of Defendants over a matter in which the United States Congress has not legislated.” Id. According to the defendants, any burden imposed on interstate commerce is “merely incidental and indirect.” Id. at para. 51.

The plaintiffs filed a motion for summary judgment on April 4, 2013, arguing that the ordinance is a per se violation of the Dormant Commerce Clause that impermissibly imposes excessive burdens on interstate commerce. A hearing on the motion has been set for June 27, 2013.

The outcome of the suit will have far-ranging implications, not just for pharmaceutical take-back programs, but also for any mandatory product stewardship take-back programs attempting to impose financial and other responsibility on producers of those products (e.g., paints, batteries, electronics, or other potentially hazardous household items).

Already, the State of California has proposed state-wide pharmaceutical extended producer responsibility (EPR) legislation, SB 727, which is modeled after Alameda County’s Ordinance as well as a similar law in British Columbia. Although the drug take-back program would only be available in California, the bill would impose costs on out-of-state companies engaged in interstate commerce. As with Alameda County’s Ordinance, by prohibiting such companies from charging a point-of-sale or other fee to California consumers of pharmaceutical products, the cost of the program would ultimately be borne by out-of-state consumers.

California is not the first state to propose EPR legislation aimed at pharmaceuticals, but other state efforts have been largely unsuccessful. At the federal level, in the fall of 2011, Representative Louise Slaughter (D-NY) introduced HR 2939, “The Pharmaceutical Stewardship Act of 2011.” The bill would have established a national drug take-back program financed by producers and would have required producers to offer either a collection site in every county and city nationwide with a population greater than 10,000 or disposal via prepaid mailer. The bill never made it out of committee.

Healthcare organizations, public safety organizations, and environmental organizations are all calling for expanded drug take-back programs, whether achieved through EPR supported legislation or through voluntary means. Regardless of who develops, implements, and pays for these programs, however, coordination at the federal level is needed in order to simplify the operation of take-back programs and better define—or even mitigate—associated liability.

Participation in take-back programs is stymied by both liability concerns and the logistical challenges of operating such a program in compliance with all applicable regulations. The complicated and overlapping regulations associated with various aspects of such programs through the Environmental Protection Agency (EPA), the Drug Enforcement Administration (DEA), the Occupational Safety and Health Administration (OSHA), the Department of Transportation (DOT), the United States Postal Service (USPS), and state regulatory schemes serve as a deterrent to private interests that may otherwise have the desire to operate a voluntary take-back program. A proposed rule recently published by the DEA to implement the Secure and Responsible Drug Disposal Act of 2010 (S. 3397) includes a disclaimer that highlights this lack of coordination among federal agencies. It states:

The requirements of this proposed rule only govern compliance with the Controlled Substances Act. Any selected method of destruction of controlled substances meeting the requirements of this proposed rule must also comply with all applicable federal, state, and local laws and regulations applicable at the time of destruction. Because of the broad range of such environmental and other laws and regulations, this proposed rule does not purport to address what laws may or may not be applicable in a particular circumstance now or at some future date.

Notice of Proposed Rulemaking for the Disposal of Controlled Substances, 77 Fed. Reg. 75784, 75804 (December 21, 2012).

This type of uncertainty not only hinders voluntary efforts, it also creates additional complications and potential concerns with overlapping and perhaps conflicting federal, state, and local efforts to regulate the management and disposal of pharmaceuticals. Finalization of the proposed DEA take-back rule would help smooth the way with regard to the collection of controlled substances through take-back programs. Beyond that, additional work is needed at the federal level particularly with regard to the collection and disposal of hazardous pharmaceuticals.

In light of take-back program challenges, liability concerns, and numerous other issues facing hospitals, retail pharmacies, and other generators of pharmaceutical waste, the time is ripe for EPA to focus on new pharmaceutical waste management standards. Through more flexible management standards, EPA has the opportunity to lower costs and management burdens associated with pharmaceutical waste management generally, and to better align associated liability with risks. Doing so may both lower the burdens imposed on manufacturers through EPR legislation, such as that under fire in Alameda County, and lessen the need for such legislation in the first instance.

Amy P. McMorrow

Ms. McMorrow is a senior associate with Troutman Sanders LLP, Atlanta, Georgia.