Can Tennessee charge out-of-state compounding pharmacies higher inspection fees than in-state pharmacies?

Subject

Opinion No. 14-05, Inspection Fees for Out-of-State Pharmacies Licensed in Tennessee, January 9, 2014

Plain-English summary

The Tennessee Board of Pharmacy was considering a rule that would let it (or its contractors) inspect out-of-state compounding pharmacies seeking Tennessee licensure, and that would charge those pharmacies extra fees to cover the travel and personnel costs of the inspections. The Board asked whether it had statutory authority to do that, and whether such a rule would violate the dormant Commerce Clause.

The AG said the Board lacks authority and never reached the constitutional question.

Three statutes drive the analysis:

1. Tenn. Code Ann. § 63-10-210 caps the license fees for out-of-state pharmacies at the in-state level: "[t]he license fees for out-of-state pharmacies and pharmacists shall not exceed those charged to Tennessee pharmacies and pharmacists." A surcharge for inspection costs is a fee that would push the out-of-state total above the in-state total.

2. Tenn. Code Ann. § 63-10-216, added by 2013 Tenn. Pub. Acts ch. 266 (effective April 25, 2013), is the new compounding-pharmacy inspection regime. It says that prior to initial licensure or renewal, an out-of-state pharmacy practice site "must have an inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located" and provide Tennessee a copy of that inspection (no older than 12 months). The legislature deliberately put the inspection in the hands of the home-state regulator, not the Tennessee Board.

3. Tenn. Code Ann. § 63-10-307(a) and § 63-10-308(a) give the Board general inspection and rulemaking-fee authority. But administrative rules cannot be inconsistent with the enabling statute. Holiday Inns, Inc. v. Olsen, 692 S.W.2d 850, 853 (Tenn. 1985), holds that inconsistent rules are void. § 63-10-216 specifies which inspector handles out-of-state compounding pharmacies, and that specificity overrides the Board's general inspection power for this subset.

Because the Board cannot inspect out-of-state compounding pharmacies itself by rule, it likewise cannot impose extra fees to cover the cost of such inspections. The Board may still require additional information from an out-of-state applicant to confirm compliance with Tennessee law and Board rules; what it cannot do is bypass the home-state regulator or impose a different fee on out-of-state pharmacies.

The opinion does not reach the Commerce Clause issue, since the threshold statutory authority is missing.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Anyone applying this opinion in a current dispute should review the current text of Tenn. Code Ann. §§ 63-10-210 and 63-10-216 and any later amendments before relying on the fee-cap or inspection rules described here.

Background and statutory framework

The 2013 statute. Tennessee's 2013 legislation (Public Chapter 266, codified at § 63-10-216) addressed inspection of out-of-state compounding pharmacies seeking Tennessee licensure. As the opinion explains, it required those pharmacies to be inspected before they could be licensed in Tennessee, and it assigned the inspection to the home-state regulator rather than the Tennessee Board.

§ 63-10-216(a) full text (as adopted). "(a) Prior to initial licensure in this state as a compounding pharmacy, a pharmacy located outside of this state must have an inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located. Out-of-state pharmacy practice sites must provide a copy of the most recent inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located, which must have been within the previous twelve (12) months. Prior to renewal of its license in this state, an out-of-state pharmacy practice site must provide the most recent inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located or equivalent regulatory entity, and which must have been within the previous twelve (12) months. The board of pharmacy shall have the right to require additional information before issuing or renewing a pharmacy license to insure compliance with applicable laws of this state and any rules and policies of the board."

The fee-cap rule. § 63-10-210 was enacted earlier and applies to all out-of-state pharmacies, not just compounding pharmacies. License fees "shall not exceed" in-state fees. An inspection surcharge would violate that cap.

General inspection authority. § 63-10-307(a) lets the Board or its designated agents inspect any site or pharmacy practice "where drugs, medicines, chemicals, pharmaceuticals or poisons are manufactured, stored, sold, dispensed, distributed or administered." § 63-10-308(a) lets the Board enact rules "establishing fees necessary to carry out [the Pharmacy Practice Act]."

The conflict. General authority must yield to specific authority. § 63-10-216 specifically addresses how out-of-state compounding pharmacies are inspected for licensure (home-state regulator), and § 63-10-210 specifically caps the out-of-state fees. A rule allowing the Board to perform its own inspections of out-of-state compounders and charge extra would be inconsistent with both statutes, and therefore void under Holiday Inns, Inc. v. Olsen, 692 S.W.2d 850, 853 (Tenn. 1985).

Pretermitted constitutional issue. Because the rule fails on statutory grounds, the AG did not analyze the Commerce Clause. A differential fee scheme that burdens out-of-state pharmacies is a classic dormant-Commerce-Clause concern, but the threshold issue here was simpler.

Common questions

Can the Board ever inspect an out-of-state compounding pharmacy itself?

The statute leaves room for the Board to require "additional information" to confirm compliance. The opinion did not rule that the Board can never travel out of state under any circumstance; it ruled that the Board cannot promulgate a rule replacing the home-state regulator's inspection with its own, and cannot charge a separate fee for inspections that the statute doesn't authorize.

What if the home state's inspection isn't comprehensive enough for Tennessee's compounding rules?

The Board can require additional information before issuing or renewing a license under the express text of § 63-10-216(a). It cannot substitute its own field inspection or impose an extra inspection fee.

Can the Board charge a higher base license fee to out-of-state pharmacies?

No. § 63-10-210 caps out-of-state fees at the in-state level.

Does this apply to all out-of-state pharmacies or only compounders?

§ 63-10-210's fee cap applies generally to out-of-state pharmacies and pharmacists. § 63-10-216 specifically addresses compounding pharmacies. The opinion's analysis hinges on both, so the conclusion that the Board cannot impose extra inspection fees on compounders is tightly tied to that specific subset; the general fee-cap point in § 63-10-210 applies more broadly.

Could the legislature change this?

Yes. The General Assembly could amend §§ 63-10-210 and 63-10-216 to authorize Board-conducted inspections of out-of-state compounding pharmacies and extra fees. The opinion is a statutory-interpretation conclusion, not a constitutional one.

Citations

Statutory: Tenn. Code Ann. § 63-10-210; § 63-10-216; § 63-10-307(a); § 63-10-308(a); 2013 Tenn. Pub. Acts, ch. 266. Cases: Holiday Inns, Inc. v. Olsen, 692 S.W.2d 850 (Tenn. 1985). Constitutional reference: Commerce Clause of the U.S. Constitution (raised in the second question, not reached).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-005.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL

January 9, 2014

Opinion No. 14-05

Inspection Fees for Out-of-State Pharmacies Licensed in Tennessee

QUESTIONS

1. Does the Tennessee Board of Pharmacy have the statutory authority to enact a rule imposing a fee or charge on Tennessee-licensed pharmacies that are physically located in other states and that engage in the practice of compounding sterile products, where such fee or charge is related to the additional expense incurred in inspecting these pharmacies and would not be imposed on similar pharmacies located inside the state?

2. Would such a rule violate the Commerce Clause of the United States Constitution?

OPINIONS

1. Based upon the provisions of the Tennessee Pharmacy Practice Act, and particularly of recently enacted Tenn. Code Ann. § 63-10-216, the Tennessee Board of Pharmacy is not authorized to enact a rule that would implement licensing-related inspections of out-of-state compounding pharmacies by Board personnel and that would impose additional fees or charges upon those pharmacies for the costs of such inspections.

2. Because of the answer to the first question, the question about the Commerce Clause is pretermitted.

ANALYSIS

In an effort to ensure that the same compounding standards are followed by all licensees that compound sterile products, regardless of physical location, the Tennessee Board of Pharmacy is considering the promulgation of a rule related to the inspection of Tennessee-licensed pharmacies that are physically located in other states and engage in the practice of compounding sterile products. The Board inspects only in-state pharmacies at present. If it were to undertake an out-of-state inspection process, the Board would incur additional operating expenses in the form of personnel and travel fees or would need to expend additional funds in order to contract for such services. In order to raise revenue to pay these expenses, the Board is considering promulgating a rule that would impose fees or charges on compounding pharmacies located outside Tennessee that would not be imposed on similar pharmacies located inside the state.

1. The Board of Pharmacy can enact a rule imposing additional fees or charges upon out-of-state pharmacies for the costs of performing licensing-related inspections of those pharmacies only if the rule would be consistent with governing statutes. If rules and regulations promulgated by an administrative agency or board are inconsistent with the enabling statute, they are void and invalid. Holiday Inns, Inc. v. Olsen, 692 S.W.2d 850, 853 (Tenn. 1985) (citations omitted).

Tenn. Code Ann. § 63-10-307(a) of the Tennessee Pharmacy Practice Act provides the Board or its designated agents with power and authority "to inspect any site or professional pharmacy practice, other than storage sites utilized by manufacturer's representatives, where drugs, medicines, chemicals, pharmaceuticals or poisons are manufactured, stored, sold, dispensed, distributed or administered." Tenn. Code Ann. § 63-10-308(a) gives the Board broad authority to enact rules "establish[ing] fees necessary to carry out [the Tennessee Pharmacy Practice Act]."

However, Tenn. Code Ann. § 63-10-210, which requires pharmacies that dispense and mail prescription drugs into Tennessee from another state to pay licensure fees required of Tennessee pharmacies, specifically states that "[t]he license fees for out-of-state pharmacies and pharmacists shall not exceed those charged to Tennessee pharmacies and pharmacists." Furthermore, effective April 25, 2013, Public Chapter 266 of the Acts of 2013 evinces the Tennessee Legislature's intent with respect to conducting inspections of out-of-state compounding pharmacies that seek licensure in Tennessee. The 2013 legislation added a new statute to the Tennessee Pharmacy Practice Act, Tenn. Code Ann. § 63-10-216, which provides, in pertinent part:

(a) Prior to initial licensure in this state as a compounding pharmacy, a pharmacy located outside of this state must have an inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located. Out-of-state pharmacy practice sites must provide a copy of the most recent inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located, which must have been within the previous twelve (12) months. Prior to renewal of its license in this state, an out-of-state pharmacy practice site must provide the most recent inspection by the regulatory or licensing agency of the state in which the pharmacy practice site is physically located or equivalent regulatory entity, and which must have been within the previous twelve (12) months. The board of pharmacy shall have the right to require additional information before issuing or renewing a pharmacy license to insure compliance with applicable laws of this state and any rules and policies of the board.

While the 2013 legislation requires that out-of-state compounding pharmacies must be inspected before they may be licensed in Tennessee, it also provides that such inspections be made by the appropriate agency of the state in which the pharmacy is physically located.

Therefore, we conclude that the Tennessee Board of Pharmacy is not authorized to enact a rule requiring that out-of-state compounding pharmacies be inspected by Board personnel or contractors. We also conclude that the Board lacks authority to impose additional fees or charges upon those pharmacies for the costs of such inspections.

2. Because of the answer to the first question, the question about the Commerce Clause is pretermitted.

ROBERT E. COOPER, JR.
Attorney General and Reporter

BARRY TURNER
Deputy Attorney General

SUE A. SHELDON
Senior Counsel

Requested by:

Reggie Dilliard, D.Ph.
Executive Director
Tennessee Board of Pharmacy
665 Mainstream Drive
Nashville, Tennessee 37243