State Licensing Spotlight – Prescription medical device manufacturers & distributors: Regulatory considerations applicable to medical devices versus drugs

This article is the first in our new thought leadership series on the critical and continually evolving state regulatory concerns facing medical device manufacturers, examining the complex licensing challenges that set devices apart from drugs. Part two of the series will delve into the enforcement mechanisms and penalties for operating without the proper state licenses, underscoring the growing legal risks associated with non-compliance. The third article will provide compliance solutions that manufacturers can adopt to avoid or mitigate those penalties. We will also shine a light on the role of the National Association of Boards of Pharmacy (NABP) in enforcing state safety and quality standards. For more information about state medical device licensing and compliance generally, please see our other articles on these topics, available online here.

History & Structure of State Licensing Regimes

Historically, state laws primarily focused on drug manufacturers and distributors, but in recent years, many states have expanded their oversight to include medical devices. Some have introduced specific regulations for medical devices, while others have chosen to apply existing drug-related laws to them through broad interpretations.

Today, some states’ laws and regulations emphasize drug-specific requirements without mention of “medical devices.” However, many of those states either enforce their requirements against medical device manufacturers and distributors through the relevant board’s interpretative powers, or by broadly defining drugs to include medical devices. As a result, medical device companies must thoroughly understand state regulations to ensure compliance and avoid penalties.

Types of Drugs or Devices Being Manufactured or Distributed

The type of drug or medical device being manufactured or distributed plays a crucial role in determining licensing requirements. Some devices, like prescription drugs, require a prescription, while others are available over the counter. Additionally, prescription medical devices may be ordered directly by physicians, bypassing the need for a pharmacist’s involvement. These distinctions impact state licensing obligations, which can also differ for durable medical equipment (DME) and combination products that include both drugs and medical devices.

Regulatory Considerations for Drugs and Devices

Public Safety

Regulatory oversight is driven by public safety concerns. While drugs act chemically and devices function mechanically, states have increasingly recognized that regulation should be based on product-specific risks rather than broad categories. Consequently, most states regulate both prescription and non-prescription drug manufacturers, while device regulations tend to focus on prescription medical devices.

 Controlled Substances

Controlled substances are another area where drugs and devices diverge in regulatory treatment. Prescription drugs classified as controlled substances require additional state and federal licensing, while medical devices generally do not fall under controlled substance laws unless they contain drug components.

Manufacturing Facilities

Manufacturing facilities for drugs and devices also face different licensing standards, with stricter security and oversight measures often applied to drug production. Facilities producing drugs and medical devices are typically subject to different licensing requirements, with many states imposing stricter regulations on manufacturers, laboratories, and pharmacies handling drugs. Manufacturers of combination products, which incorporate both drug and device components, may also be affected by these requirements. Because states assess the risks of manufacturing drugs and devices differently, licensing and application requirements can vary significantly. Common regulatory measures include background checks and certifications ensuring employees have no history of drug abuse or illicit distribution, as well as stringent controls on temperature, humidity, and overall facility security.

Expertise and Individual Licensure

The supervision and expertise required for drug and medical device manufacturing and distribution also differ. Drug manufacturers may need a licensed pharmacist on staff for their distribution activity, while medical device manufacturers typically require a designated representative with relevant industry experience to provide oversight of their distribution activity. Security concerns, such as theft and misuse, are more pressing for drugs than devices, though some states impose similar protective measures for both industries.

Security Concerns

Regulators may be increasingly concerned by drugs as opposed to devices with respect to theft, alarm systems, and control of environmental conditions; but state regulators are often equally concerned about these issues with respect to device manufacturers and distributors. Some state licensing regimes require background checks for employees, or mandate manufacturers and distributors disclose that they hired employees with a prior history of the diversion, theft, or misuse of drugs or medical devices. Many states also require regular inspections by a facility’s home state and/or disclosure of FDA inspection findings.

Distribution Chains

With respect to the distribution chain of prescription drugs, it is common to see manufacturers produce drugs, which are then sent to a distributor who provides the drugs to a hospital, healthcare provider, or pharmacy to be dispensed to patients. Prescription drugs are also commonly distributed to another manufacturer, for example, a manufacturer of medical devices for use in drug-device combination products.

States have begun to recognize that there is a greater variety of distribution permutations for prescription medical devices, and some licensing regimes are structured accordingly. Some states allow physicians to dispense medical devices directly to patients, while others require distribution through licensed medical facilities. Emerging technologies like Software as a Medical Device (SaMD) add another layer of complexity, as development often occurs across multiple locations, and distribution is largely cloud-based.

Analyzing Requirements & Selecting the Correct Licenses

Understanding and complying with licensing requirements is crucial for companies to avoid compliance risks. Applying for unnecessary licenses can create undue regulatory burdens, while failing to obtain the correct licenses can result in legal and financial penalties. Additionally, disciplinary actions in one state can have ripple effects, requiring disclosure in other jurisdictions.

Given the complexity of state licensing laws, companies should regularly review their compliance strategies to ensure they meet all necessary requirements. Proactively identifying and maintaining the correct licenses helps businesses avoid costly penalties and reputational harm.

Conclusion

State regulatory regimes vary greatly in the licensing of manufacturers and distributors of drugs and medical devices. To avoid costly penalties, reputational harm, and the other burdens associated with regulatory violations, companies should diligently and periodically identify the licenses that are required, and the states in which they are needed.

If you have any questions about the differences between state licensing for prescription drugs and prescription medical device manufacturers and distributors, please contact any of the authors of this article or the Hogan Lovells lawyer with whom you usually work.

Authored by Jodi Scott, Wil Henderson, Greg Kass, Lauren Massie, and Hannah Wailes.