Rochester Drug Co-Operative, Inc. (“RDC”), one of the 10 largest pharmaceutical distributors in the United States, was recently charged along with its former Chief Executive Officer and former Chief Compliance Officer, for unlawfully distributing oxycodone and fentanyl, and conspiring to defraud the DEA. By criminally charging a pharmaceutical distributor and its senior management, the government instigated an unprecedented and innovative tactic in the war on the opioids epidemic.

Distribution system has shared responsibility to resolve “red flags”

Under the Controlled Substances Act (“CSA”) framework, the DEA ensures that all controlled substance transactions occur within the "closed system" of distribution. The DEA in recent years has focused on the role of pharmacists and their gatekeeper function in dispensing medications for a legitimate medical purpose and the pharmacist’s corresponding responsibility to identify and resolve “red flags.”

RDC has entered into a deferred prosecution agreement (the “Agreement”) with the Office of the U.S. Attorney for the Southern District of New York, for conspiracy to distribute controlled substances “outside the scope of professional practice and not for a legitimate medical purpose.” The government has used such language against licensed professionals who prescribe or dispense directly to patients. The language from the DEA regulations is explicitly and specifically directed to prescribers and pharmacists:

A prescription for a controlled substance to be effective must be issued for a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice. The responsibility for the proper prescribing and dispensing of controlled substances is upon the prescribing practitioner, but a corresponding responsibility rests with the pharmacist who fills the prescription. Arguably the DEA is now imposing on pharmaceutical distributors the duty to detect and prevent violations of the CSA by licensed professionals, and to assess a legitimate medical purpose and scope of professional practice without any firsthand knowledge or medical training. Just like pharmacists, distributors are required to identify and resolve their own red flags before filling orders. Yet distributors are even further removed than pharmacists from any firsthand knowledge of the patient’s medical condition and the physician-patient relationship.

Criminal case against RDC may promulgate new standard for distributor compliance programs

Under the Agreement and consent decree, RDC stipulated to the accuracy of an extensive Statement of Facts, and agreed to pay a $20 million penalty, submit to supervision by an independent monitor, and reform its compliance program.

The DEA monitors the distribution of controlled substances by requiring manufacturers and distributors to file reports through the Automated Reports and Consolidated Orders System (ARCOS) for certain scheduled drugs. Prosecutors allege that RDC knowingly failed to report suspicious orders to protect its high-volume pharmacy customers. RDC filled more than 1.5 million orders for controlled substances from 2012 to 2016, but reported just four out of more than 8,300 suspicious orders to the DEA.

The terms of the Agreement may set forth the new standard for distributor compliance programs and the methodology for calculating and establishing appropriate thresholds to detect potentially suspicious orders from pharmacy customers. Under the Agreement, RDC is required to implement an extensive Controlled Substance Monitoring Program. Customer thresholds for controlled substances are to be based on “the customer’s historical dispensing activity data” and “the ordering patterns of comparable pharmacy customers.” RDC is not permitted to fulfill any orders exceeding the threshold without conducting a thorough and diligent investigation, including “contacting the customer to obtain an explanation of the increase in ordering.” To effectuate a threshold change request, an on-site visit to the pharmacy is necessary.

The following red flags specifically enumerated in the Agreement, are reminiscent of the red flags in the DEA Pharmacist’s Manual and case law against pharmacists, and require a pharmaceutical distributor to really know not only its customer but also “accepted medical standards”:

1. A high percentage of the pharmacy’s controlled substance sales are paid for in cash;
2. The pharmacy fills prescriptions for many patients who live far from the pharmacy;
3. The pharmacy frequently fills prescriptions for higher quantities than the accepted medical standard;
4. A high percentage of the pharmacy’s overall dispensing consists of controlled substances;
5. A disproportional percentage of the pharmacy’s controlled substance sales are for highly diverted controlled substances;
6. The pharmacy fills prescriptions written by prescribers acting outside their practice or specialty;
7. The pharmacy fills for prescribers who have been subject to discipline or a law enforcement action;
8. The pharmacy dispenses the same quantity of highly diverted controlled substances to most patients.

The effect of the criminal charges against the Chief Compliance Officer for his alleged willful failure to report suspicious orders with the DEA may spill over beyond the pharmaceutical industry. The recently updated DOJ guidelines regarding corporate compliance programs apply to corporate America in general. It will be interesting to see whether the Justice Department will apply the criminal element to other industries at a higher rate and emphasize personal liability for deficient government reporting in violation of law.