DEA Win Increases Pressure on Wholesale Drug Distributors
by: Jodi L. Avergun of Cadwalader, Wickersham & Taft LLP  -  Health Care Fraud Focus
Thursday, August 3, 2017

Under the federal Controlled Substances Act, DEA registrants are required to prevent the diversion of controlled substances outside the closed system of distribution that governs and licenses those entities and individuals who can manufacture, distribute, dispense and prescribe controlled substance medications.  One of the hallmarks of the closed system of distribution is the duty of all registrants to detect and prevent suspicious orders.  Beginning in 2007, the DEA began to place great emphasis on wholesale distributors, a relatively small class of DEA registrants, and began imposing on those distributors more real-time responsibility in monitoring and stopping potentially suspicious orders.

Between 2007 and 2016, DEA brought a number of administrative and civil actions against wholesale distribution companies for failing to adequately monitor and prevent suspicious orders of controlled substances, revoking the DEA licenses of various distribution warehouses and collecting hundreds of millions of fines in the ensuing years.  With the increasing public health crisis caused by opioid addiction, DEA and the courts have ramped up its enforcement efforts with increasingly harsh results.

One such example of the increased pressure on distributors is the case of Masters Pharmaceuticals v. DEA, decided June 30, 2017.  In that recent case, the DEA sought to revoke Masters’ registration as a wholesale distributor for its failure to report suspicious orders to DEA.  Masters fought back, trying the case in DEA’s administrative courts, and then appealing the matter to the U.S. Circuit Court of Appeals for the District of Columbia.  In a blow not just to Masters but to DEA-registered wholesale distributors everywhere, the court found in the DEA’s favor.  And, in an opinion unmistakably influenced by the current prescription drug crisis, it announced an interpretation of the regulations regarding suspicious order monitoring that will require almost all wholesale drug distributors, many of which already had robust monitoring systems in place, to change their processes for reporting suspicious orders.

It is doubtful that this increased reporting will actually benefit DEA.  The result of Masters is that while the volume of reports will increase, the quality of those reports will necessarily decrease.  Rather, companies now have to report the results of their automated monitoring processes rather than those that highly experienced regulatory staff evaluated in a qualitative matter.  DEA has neither the time nor resources to evaluate the magnitude of orders that it will receive given Masters.  That helps no one.

 

NLR Logo

We collaborate with the world's leading lawyers to deliver news tailored for you. Sign Up to receive our free e-Newsbulletins

 

Sign Up for e-NewsBulletins