Drug Distributor Sues DEA After License is Revoked

May 16, 2018
Ann W. Latner, JD

The number of legal cases involving opioids has been rising as dramatically as the opioid crisis in this country. Over the last couple of years, pharmacies, pharmacists, hospitals, doctors, manufacturers, and distributors have been subject to lawsuits or legal action due to opioids. This month we look at a case where a distributor legally challenged the DEA’s decision to revoke its license to sell controlled substances.

Just the Facts

The Controlled Substances Act requires that all distributors register with the federal Drug Enforcement Agency (DEA). The Administrator of the DEA is tasked with making sure that registered distributors conduct their operations consistent with the public interest. The law requires the Administrator to consider (1) whether the distributor has maintained effective controls against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels; (2) whether the distributor has complied with applicable state and local laws; (3) whether the distributor has previously been convicted under federal or state laws for a crime related to the sale of controlled substances; (4) the distributor's past experience with controlled substances; and (5) such other factors as may be relevant to and consistent with the public health and safety.

A decade ago, Masters Pharmaceuticals, Inc., the distributor, was cited by the DEA for failing to maintain effective controls against diversion of hydrocodone. Specifically, the DEA alleged that the distributor failed to notify the DEA when rogue internet pharmacies placed suspicious hydrocodone orders, and that the distributor filled these orders without doing the proper due diligence.

The DEA requires two things for its security requirements – (1) that distributors design and operate a system to identify suspicious orders of controlled substances, and (2) that these orders are reported to the DEA. The reporting requirement is modest and only requires that the distributor provide basic information about the orders. Once a distributor has reported a suspicious order, it must either decline to ship the order, or conduct some due diligence to ensure that the order is not likely to be diverted.

To avoid losing its license, the distributor entered into a settlement with the DEA requiring the distributor to pay a fine and implement a compliance system to detect suspicious orders and prevent diversion of controlled substances into illegal channels. The distributor created a computer program to identify any order for a controlled substance that was of an unusual size, frequency, or pattern. If a customer exceeded its controlled substance limit, the order would be held so that the distributor’s staff could review it.

The distributor also created a protocol for its staff, requiring them to investigate held orders by calling the customer, requesting an explanation, documenting the customer’s response, and independently verifying the information the customer provided.

The Case & Decision

Several years later, the DEA became concerned that the distributor’s staff was failing to detect and report to the DEA suspicious orders of oxycodone products. After investigating the distributor, the DEA discovered that rather than report suspicious orders to the DEA or follow the protocol that had been established, the distributor’s staff were simply deleting held orders or reducing their size, so they would no longer trigger a hold. When employees did call to obtain explanations for held orders, they simply accepted what the pharmacies said and took no steps to determine if the explanations were plausible. Even when information was provided which confirmed the suggestion of a suspicious order, the distributor failed to report it to the DEA. In addition, the distributor had also filled orders for millions of dosage units of oxycodone for eight illegitimate pharmacies in Florida and Nevada.

The DEA revoked the distributor’s certificate of registration, and the distributor appealed to the US Court of Appeals. The distributor argued that the computer system regularly held orders that were not actually suspicious, and that it didn’t need to report the held orders to the DEA unless they were flagged by the computer AND by an employee following the protocol. However, evidence showed that the distributor’s employees were routinely failing to implement the protocol. According to the Court, the evidence showed that on hundreds of occasions the distributor did not report orders flagged by the computer and then did not conduct an investigation as required by the protocol. After examining the evidence, the Court of Appeals agreed with the DEA’s decision to revoke the distributor’s license.

Protecting Yourself

The case probably could have been avoided if the distributor followed the plan that it had set up. The computer identified suspicious orders, and a protocol was in place to investigate those orders. But rather than investigate or report the orders to the DEA, the distributor’s employees simply changed amounts or dates, or questioned the customer and then accepted any explanation, suspicious or otherwise. In this time of an opioid crisis, when national attention is focused on the issue, more care, not less, needs to be taken to ensure that pharmacies and distributors are complying with DEA requirements. If an order seems suspicious, question it. If you are not satisfied with the answer, do not dispense the medications. Document your actions with comprehensive notes.   

Ann W. Latner, JD, is a freelance writer and attorney based in New York. She was formerly Director of Periodicals at the American Pharmacists Association.

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