Pharmaceutical manufacturers and distributors increasingly are being called for duty in the nationwide war on drugs, particularly in covert operations where the government believes those in the corporate supply chain have crept over enemy lines.

“In the midst of one of the worst drug abuse crises in American history, the Department of Justice has the responsibility to ensure that our drug laws are being enforced,” Attorney General Jeff Sessions said in a statement. “Part of that mission is holding drug manufacturers accountable for their actions.”

In a first-of-its-kind case that highlights the government’s broadening enforcement stance to conquer the nationwide opioid epidemic, Mallinckrodt Pharmaceuticals—a maker of generic oxycodone—on July 11 reached a $35 million settlement with the government to resolve allegations that the pharmaceutical manufacturer failed to report suspicious orders of pharmaceutical drugs, and for record-keeping violations.

Specifically, the government alleged that from 2008 until 2011, Mallinckrodt supplied distributors—and the distributors then supplied various U.S. pharmacies and pain clinics—an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders.

Title 21CFR 1301.74(b) of the Drug Enforcement Administration’s Suspicious Order Monitoring regulations requires registrants to design and implement a system to detect “suspicious orders” of controlled substances and notify the local DEA field office when such orders are discovered. The regulations define “suspicious orders” as orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.

The Department of Justice called the resolution the “first settlement of its magnitude” with a pharmaceutical manufacturer for failing to meet its obligations to detect and notify DEA of suspicious orders of controlled substances—the abuse of which contributes to the current nationwide drug epidemic.

“While Mallinckrodt disagreed with the U.S. government’s allegations, we chose to resolve the legacy matter to eliminate the uncertainty, distraction, and expense of litigation.”
Michael-Bryant Hicks, General Counsel, Mallinckrodt

The settlement additionally includes what the Department of Justice called a “groundbreaking” parallel agreement with the DEA that for the first time requires a drug maker—in this case, Mallinckrodt—to utilize chargebacks and similar data it collects on orders from customers down the supply chain to identify suspicious sales.

Pharmaceutical manufacturers often offer discounts, called “chargebacks,” based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. Under the terms of Mallinckrodt’s settlement, the company must monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small-chain pharmacy and pain-clinic customers.

The government further alleged violations in the company’s manufacturing batch records. Specifically, the government said Mallinckrodt violated record-keeping requirements at one of its manufacturing facilities, creating discrepancies between the actual number of tablets made in a batch and the number of tablets Mallinckrodt reported on its records.

“Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain,” the Justice Department stated.

DEA’s Memorandum of Agreement with Mallinckrodt sets forth specific procedures the company has agreed to undertake to ensure the accuracy of batch records and protect loss of raw product in the manufacturing process.

Mallinckrodt first announced in April that it had reached an agreement in principle with the DEA and the U.S. Attorneys’ Offices for the Eastern District of Michigan and the Northern District of New York to resolve the matter. The company, however, denied the government’s allegations, and the settlement contained no admission of liability.

“We are proud of the fact that Mallinckrodt has long been an industry leader in actively combatting the serious issue of prescription drug abuse with a demonstrated record of meeting and exceeding the requirements of federal and state laws governing the manufacturing, sale, and distribution of controlled substances,” Michael-Bryant Hicks, Mallinckrodt’s general counsel, said in a statement. “The company has been repeatedly commended by the DEA for its industry-leading anti-diversion program, which we believe goes beyond the requirements of DEA regulations.”

“While Mallinckrodt disagreed with the U.S. government’s allegations, we chose to resolve the legacy matter to eliminate the uncertainty, distraction, and expense of litigation,” Hicks added.


Below is a partial list of questions the Drug Enforcement Administration suggests distributors should ask prior to shipping controlled substances.
This list of questions is not intended to be all inclusive nor should it be interpreted that every situation or registrant activity is covered. This questionnaire is provided to assist the distributor to formulate a better understanding of who their customers are and whether or not they should sell to them controlled substances.
It is incumbent upon you, the distributors, to ensure that sales to your customers are for legitimate purposes. It is further incumbent upon you to identify illicit or suspicious activities which may result in The diversion of controlled substances. The use of this questionnaire should not be construed in any manner to be a mechanism or means that you have fully met the criteria and actions required by 21 USC 823 or other state and federal laws that are applicable.
Possible questions for a pharmacies:
Does the pharmacy fill prescriptions via the Internet? If so, is the pharmacy registered with the DEA under the Ryan Haight Act?
Is this a mail order pharmacy (fills prescriptions for insurance, etc.)?  (Note: A pharmacist may claim to be mail order pharmacy but may actually be operating as an Internet pharmacy. Do not accept the response to this question at face value.)
Is the pharmacy licensed in all states for which it mails or fills prescriptions?
Does the pharmacy report to all states that have prescription monitoring program in which their customers reside and to whom they dispense?
Does the pharmacy have staff or a private firm that solicits practitioners to get more business?
What is the pharmacy’s ratio of controlled vs. non-controlled orders?
Does the phamacy order a full variety of controlled substances and are they fairly evenly dispersed? If not, why the disparity?
What are the hours of operation of the pharmacy?
Does the pharmacy have security guards on the premises? If so, why?
What methods of payment does the pharmacy accept (cash, insurance, Medicaid, and in what ratios)?
Who is the pharmacy’s primary supplier?
Does the pharmacy order from other suppliers as well? If so, why and what controlled substances?
If this is a new account, why does the pharmacy want you to be their supplier?
If you are not the only supplier, what controlled substances will the pharmacy be ordering from you, in what quantities, in what time frame, and will they be ordering these same products from other suppliers?
What ratio will you be supplying compared to other suppliers?
Does the pharmacy fill prescriptions for out of state customers? If so, for how many out-of-state customers does the pharmacy fill (ratio or approximate number)?
Source: Drug Enforcement Administration

Broader implications. The DEA has long had in place a “Know Your Customer” policy of taking “reasonable measures to identify their customers, understand the normal and expected transactions typically conducted by those customers, and, consequently, identify those transactions conducted by their customers that are suspicious in nature,” according to the DEA. The resolution with Mallinckrodt, however, advances the DEA’s position that drug makers need to go beyond “know your customer” to use otherwise available company data to “know your customer’s customer.”

“This settlement reflects DEA’s commitment to the public health and safety by holding DEA-registered manufacturers accountable and requiring them to do their due diligence by knowing the downstream customer,” DEA Special Agent in Charge Timothy Plancon said in a statement. “This investigation lets all DEA registrants know that they need to use all of their resources and tools to detect and report suspicious orders.” 

The case serves as a warning to compliance officers of controlled-substance manufacturers and distributors that they are increasingly under the watch of the government. “This settlement continues our fight against the opioid epidemic by requiring all in the supply chain not to participate in suspicious orders: physicians, pharmacies, distributors—and now manufacturers,” said Acting U.S. Attorney Daniel Lemisch.

“Manufacturers and distributors have a crucial responsibility to ensure that controlled substances do not get into the wrong hands,” said DEA Acting Administrator Chuck Rosenberg. “When they violate their legal obligations, we will hold them accountable.”

Practical measures. From a compliance standpoint, it’s often difficult for controlled-substance manufacturers and distributors to establish a robust “Know Your Customer” policy in the absence of any clear guidelines. Reasonable measures, however, can be taken.

A good starting point is to have in place a system that monitors and identifies orders that are unusual in size, pattern, or frequency, per DEA regulations. “The system must be validated on a continual basis to minimize false positive orders,” Matt Crusan, director of DEA compliance and services at QPharma, wrote in a blog post. “Perimeters must be established that define which orders will be of interest.”  

The suspicious order monitoring system should also be able to spot red flags that exceed whatever perimeters are established in the system, he noted. One red flag, for example, might be if a customer orders significantly more controlled substances in comparison to non-controlled substances.

Flagged orders should then be carefully reviewed, and not by just one individual.  “Some companies have taken the additional measure of creating a committee to determine final approval on the release of held orders,” Crusan wrote. “Regardless of your individual approach, the review must be thorough and objective.”

Compliance officers of drug makers and distributors—even those that feel they have a robust suspicious order monitoring program already in place—should be mindful that failure to detect suspicious orders of controlled substances and notify the DEA could result in an enforcement action and significant civil penalties, as the Mallinckrodt case demonstrates.

New FDA requirements.  The Justice Department and DEA are not the only agencies that are requiring more of drug manufacturers. On July 10, during a two-day meeting convened by the Food and Drug Administration on opioid abuse, FDA Commissioner Scott Gottlieb announced that the agency will be updating its Risk Evaluation and Mitigation Strategy plan (REMS) broadly extending the compliance requirements of certain drug manufacturers.

For the first time, makers of immediate-release (IR), or instant-acting, opioids will be required to provide training to physician prescribers and other health care providers involved in the management of patients with pain, including nurses and pharmacists. Previously, only makers of extended-release, or long-acting, opioids had to provide this training. Gottlieb added that the FDA will also be updating and expanding the scope of its blueprint for prescriber education.

In the coming weeks, letters detailing the new requirements will be sent to IR manufacturers, Gottlieb said. “The new training will be aimed at making sure providers who write prescriptions for the IR opioids are doing so for properly indicated patients, and under appropriate clinical circumstances,” he said. “This is part of a broader effort to take new steps to make sure providers are properly informed about suitable prescribing and the risks and benefits associated with opioid drugs.”

The FDA’s meeting follows an unprecedented move it took in June, when it requested that pharmaceutical company Endo International voluntarily withdraw its opioid drug, OPANA ER, from the market. After careful consideration, Endo announced on July 6 that it would comply with the request, taking a loss of approximately $159 million in annual net sales of the drug.

Recent actions by the Department of Justice, DEA, and FDA serve as a clear warning that the government expects controlled-substance manufacturers and distributors to play a more upfront role. At a minimum, pharmaceutical manufacturers should reevaluate their “Know Your Customer” policy, educational program, and any processes and procedures that may now need to be revised to comply with current laws and enforcement agency expectations.