Three major drug distributors—McKesson, Cardinal Health, and AmerisourceBergen—and drugmaker Johnson & Johnson this month reached a proposed $26 billion multistate agreement for their alleged roles in fueling the nationwide opioid epidemic. Equally significant to the monetary penalties are the compliance lessons the settlement imparts on the pharmaceutical industry at large.
Under the monetary terms of the agreement—contingent upon the number of state and local governments that elect to opt into it over the next several months—the distributors agree to collectively pay up to $21 billion over the next 18 years. McKesson will pay up to $7.9 billion, while Cardinal Health and AmerisourceBergen each will pay up to $6.4 billion. Johnson & Johnson will contribute up to $5 billion over the next nine years. Most of the funds are earmarked for opioid treatment and prevention efforts.
The drug distributors face allegations of ignoring red flags pointing to the improper use of prescription opioids, while drugmakers like J&J are accused of deceptively marketing their opioids.
In a joint statement, McKesson, Cardinal Health, and AmerisourceBergen said they “strongly dispute the allegations at issue.” In a separate statement, J&J said, “This not an admission of any liability or wrongdoing, and the company will continue to defend against any litigation that the final agreement does not resolve.”
What all four companies hope for in reaching a national settlement agreement is to collectively end the thousands of lawsuits that have been filed against them in federal and state courts nationwide. But, not all states are on board. Calling the settlement “not nearly good enough,” Washington State Attorney General Bob Ferguson is opting for litigation.
The trial against McKesson, Cardinal Health, and Amerisource Bergen begins Sept. 7, while J&J is scheduled to appear in court in January 2022. If the success of past state lawsuits is any indication, the pharmaceutical industry is in for a long, costly road.
On July 20, the New York attorney general announced specific settlement terms with the three distributors, which are intended to parallel the terms of the nationwide settlement agreement. If the nationwide settlement becomes effective by July 1, 2022, its terms will supersede those of the New York agreement. If that date is not met, the New York state agreement and the New York consent judgment giving effect to its terms will stand.
In either case, compliance officers in the pharmaceutical industry should consider the numerous best practice compliance obligations the New York settlement requires of the distributors, including the following non-exhaustive list:
Non-incentivized sales compensation. Under the agreement, compensation of sales personnel “shall not include incentive compensation tied solely to sales of controlled substances.” Additionally, sales personnel are prohibited from “interfering with, obstructing, or otherwise exerting control” over any decision-making having to do with its Controlled Substance Monitoring Program (CSMP). Compensation and nonretaliation policies may have to be modified “to effectuate the goals of, and incentivize compliance with, the CSMP.”
Establishment of a hotline. Each distributor shall maintain a hotline permitting employees and/or customers to anonymously report suspected diversion of controlled substances or any CSMP violations.
Appointment of a chief diversion control officer. Each distributor shall establish or maintain the position of a chief diversion control officer to oversee and approve material revisions to the CSMP. This person shall be experienced in compliance with laws and regulations governing controlled substances.
Corporate governance oversight. A CSMP committee shall be established whose members should include the chief diversion control officer and heads of compliance, legal, distribution, and finance to provide oversight of the CSMP. Those performing sales functions shall not serve on the committee.
Mandatory training requirements. At least every three years in the case of existing employees, and within the first six months of hiring new employees, each distributor shall require operations, sales, and senior executives to attend trainings on the CSMP, its obligations under the agreement’s terms, and its duties to maintain effective controls against potential diversion of controlled substances and report suspicious orders pursuant to state and federal laws and regulations.
Red flags. Specific metrics shall be applied to identify potential red flags. As outlined in the agreement, red flags include dispensing highly abused controlled substances in large quantities; excessively ordering controlled substances; dispensing to out-of-area patients; cash prescriptions; and customers with enforcement history or terminated by other distributors.
Customer due diligence. Prior to initiating the sale of controlled substances to a potential customer, a member of the CSMP department (or a qualified third-party compliance consultant trained on the CSMP) shall interview the pharmacist in charge and provide a “pharmacy questionnaire.” The settlement’s terms outline specific questions to be asked.
Site visits. Each distributor shall conduct site visits—including unannounced ones, when appropriate—of customers. During site visits, the distributor’s CSMP personnel or qualified third-party compliance consultant shall interview the pharmacist in charge or other relevant employees, if appropriate, about any potential red flags and controls in place to prevent the diversion of controlled substances.
The agreement directs McKesson, Cardinal Health, and AmerisourceBergen to use data-driven systems to detect suspicious opioid orders from customer pharmacies; terminate customer pharmacies’ ability to receive shipments; and report those companies to state regulators when they show certain signs of diversion.
A monitor will oversee compliance with the terms of the agreement for a period of five years. Additionally, all three distributors will engage a third-party vendor to serve as an independent clearinghouse for data aggregation and reporting on where drugs are being distributed nationwide and how often, eliminating blind spots in current systems used by distributors. Distributors will fund the clearinghouse for 10 years.
J&J’s compliance obligations
A separate parallel settlement agreement reached June 25 with J&J could make additional waves in the pharmaceutical industry. Under that settlement, J&J will pay up to $230 million to fund opioid prevention, treatment, and education efforts across New York.
Further, J&J has agreed not to:
- Manufacturer or sell opioids in the United States (which J&J no longer does);
- Provide financial incentives or discipline its sales and marketing employees related to opioid sales;
- Offer or pay any remuneration (including kickbacks, bribes, or rebates) directly or indirectly, to any person in return for the prescribing, sale, use, or distribution of opioid products;
- Fund or provide grants to third parties for the promotion of opioids;
- Use, assist, or employ third parties to engage in any activity that the company itself would be prohibited from engaging in; and
- Lobby on activities related to opioids.
Additionally, the agreement states, no officer or management-level employee of Janssen Pharmaceuticals, which is owned by J&J, “may concurrently serve as a director, board member, employee, agent, or officer of any entity that primarily engages in [the promotion of opioids].” J&J has further agreed to share clinical trial data under the Yale University Open Data Access Project.
Both settlements could be a primer for distributors and drugmakers with pending lawsuits. The trial against the three remaining drugmakers—Endo Health Solutions, Teva Pharmaceuticals USA, and Allergan Finance—is currently underway and will continue in state court. Cases against drugmaker Mallinckrodt and distributor Rochester Drug Cooperative are moving separately through U.S. bankruptcy courts.
Purdue Pharma is also nearing the end of its bankruptcy settlement, with a confirmation hearing in the U.S. Bankruptcy Court for the Southern District of New York scheduled to commence on Aug. 9.
- Allergan Finance
- Cardinal Health
- Controlled Substance Monitoring Program
- Endo Health Solutions
- ESG/Social Responsibility
- Ethics & Culture
- Janssen Pharmaceuticals
- Johnson & Johnson
- Mallinckrodt Pharmaceuticals
- opioid epidemic
- Purdue Pharma
- Regulatory Enforcement
- Rochester Drug Cooperative
- Surveys & Benchmarking
- Teva Pharmaceuticals
- United States
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