Individuals who distribute wholesale prescription drugs or any other pharmaceuticals must be licensed by their governing state regulator (typically a state health or pharmacy department).
To be eligible for such a license, and to maintain it, a surety bond is often required of the applicant—currently, over ten states require a surety bond. The most common one being the Prescription Drug Wholesaler Bond (occasionally referred to as a Pharmaceutical Wholesaler or Prescription Drug Distributor Bond).
A Prescription Drug Wholesaler Bond ensures that the distributor will uphold applicable license regulations and financially guarantees that all fees (e.g. administrative costs and penalty charges) will be paid to the state regulator. Failure to uphold these license rules can lead to a bond claim.
As your surety provider, Jet Insurance Company is legally obligated to pay out claims to the obligee (state regulator) that have been deemed justified. However, the Jet team also has an obligation to our customers and will do all we can to protect principals (distributors) from baseless claims. With this in mind, let’s go over the best ways to avoid license violations as a prescription drug wholesaler and what to do should a claim ever occur.
Staying Out of Trouble as a Prescription Drug Wholesaler
There are a few different ways that you can violate the regulations of your license as a distributor of wholesale prescription drugs and/or other pharmaceuticals. Below you can find an extended list of generally prohibited acts:
- Failure to maintain accurate records
- Providing the governing regulator with false or fraudulent records
- Altering or removing any part of a drug, device, or cosmetic label
- Selling or offering for sale any drug, device, or cosmetic that has been intentionally repackaged or misbranded
- Promoting misleading advertising or falsely representing any drug, device, or cosmetic
- Knowingly selling or offering for sale counterfeit drugs
- Selling or trading drug samples
- Distributing a prescription drug to a patient or consumer without a prescription
- Selling, distributing, or transferring a prescription drug to a pharmacy or practitioner without providing a complete pedigree for said drug
Another common reason why the state regulator would file an official claim on your Prescription Drug Wholesaler Bond is being late on administrative fees, penalty charges, or any other licensure costs.
So, as long as you don't commit a prohibited act and complete all payments to the department that is in charge of your license in full and on time, you won’t have to worry about a bond claim.
Surety Bond Claim Process
Who Can File a Claim on a Prescription Drug Wholesaler Bond?
Most often, the obligee (governing state regulator) is the only party who can take action on the surety bond within its active duration. This can be done through a direct filing by the obligee or civil court proceedings.
In some cases, the governing regulator may file a bond claim on behalf of a damaged party. For example, if a pharmacy chain like CVS or Walgreens becomes aware that one of their stores sold an intentionally misbranded drug that had been purchased from a wholesaler, an official complaint can be filed with the licensee’s regulator. If the complaint is found to be valid and remains unresolved by the wholesaler, the claimant may be compensated for their financial losses via the obligee’s bond claim.
It is important to note that the liability window does extend due to mandated cancellation periods which range from 30 to 60 days (whatever is stated on the bond form) and tails on the bond.
In some states, such as Arizona and Nevada, there is a one-year tail on the bond upon which a claim may be filed. This means once the distributor’s license has expired, the regulator still has one year to file a claim. After that, no claim may be made.
Are There Limits to Claim Filings?
Yes, as stated above, a claim may only be filed on the surety bond within the liability period. In addition, claims cannot exceed the bond’s limit (this is represented by the bond’s dollar amount). Most Prescription Drug Wholesaler Bonds require a custom limit that is either determined by the state regulator or is a standard amount that can be found on the actual bond form.
What Would a Claim on a Prescription Drug Wholesaler Bond Look Like?
Let’s use an example:
Peter, who owns Peter’s Drug Wholesale Company in Florida, is currently holding a $25,000 Prescription Drug Wholesale Distributor Bond for his license with the State Department’s Drugs, Devices, and Cosmetics Program. He decides to make some extra cash and relabels some generic drugs as a premium name brand and distributes them to one of his pharmacy clients.
The State of Florida contacts Peter’s Drug Wholesale Company after receiving a complaint from a local pharmacy. Not only does Peter have to repay the pharmacy for the damages he receives a fine from the State of Florida. Peter is low on funds at the moment and is unable to pay all that is due at this time.
Due to Peter’s overdue balance remaining unpaid and being given no response regarding his situation, the Department proceeds with filing a claim on his Prescription Drug Wholesale Distributor Bond.
Peter’s surety provider, Jet, receives an official claim notice regarding his bond. As soon as this occurs, the Jet team contacts Peter and requests additional information, as well as all available documentation surrounding the claim. These details will be used for Jet’s own review and investigation into the alleged license violation.
Due to well-documented proof that Peter did not reimburse the pharmacy or paid his fees to the Department, Jet has no choice but to accept the claim as justified. Funds from the Prescription Drug Wholesale Distributor Bond are then sent to the pharmacy and the Department to cover what is owed by Peter.
Once the claim has been officially paid out, Peter will then be expected to reimburse Jet for the full amount that was paid out on behalf of Peter’s offenses (the irony is not lost on us). This is a common practice of all surety providers and is necessary to complete the indemnification process. If Peter continues to not pay off his obligations, this will lead to future difficulties in obtaining a new surety bond, which he’ll need if he plans on continuing his career in the pharmaceutical industry.
Laws tend to vary in each state, so Jet has provided details regarding past research completed on Prescription Drug Wholesaler Bonds within the U.S. and links to legislative documents. Take a look at the chart below.