By Jeffrey H. Brochin, J.D.
The Drug Enforcement Administration’s (DEA) revocation of a pharmaceutical supplier’s controlled substances registration was upheld where the supplier was found to have violated its previous settlement agreement, and no prejudicial error was determined in the DEA’s decision, a federal appeals court in Washington D.C. has ruled. The supplier failed to report suspicious transactions as required, and the DEA did not exceed its authority in rendering the decision (Masters Pharmaceutical, Inc. v. Drug Enforcement Administration, June 30, 2017, Pillard, N.).
Background. Masters Pharmaceutical, Inc. (Masters), a supplier of prescription medications in bulk to pharmacies across the U.S., was registered with the DEA as a vendor of controlled substances including opioids. As a registrant, Masters had an obligation to report to the DEA suspicious orders for controlled substances and to take other precautions to ensure that those medications would not be diverted into illegal channels. In 2008, the DEA issued an order to show cause why the DEA should not revoke Masters’ certificate of registration after it was alleged that Masters had failed to maintain effective controls against diversion of hydrocodone, a powerful opioid. Specifically, it was alleged that throughout 2007 and 2008, Masters violated the Reporting Requirement by failing to notify DEA when rogue Internet pharmacies placed suspicious hydrocodone orders. In addition, Masters allegedly filled those hydrocodone orders without performing adequate due diligence, in violation of the DEA Shipping Requirement.
On April 1, 2009, the DEA and Masters agreed to settle the charges in the 2008 order by way of a settlement agreement that required Masters to bring the company into compliance with DEA regulations by implementing a compliance system to detect suspicious orders for controlled substances and prevent diversion of controlled substances into illegal channels. To fulfill its obligations under the settlement agreement, Masters created a compliance system called the "Suspicious Order Monitoring System" or "SOMS," consisting of a computer program that was designed to identify any order for controlled substances that met or exceeded the criteria for suspicious orders set out in 21 C.F.R. Sec. 1301.74(b). Subsequently, the DEA revoked Masters’ certificate of registration after determining that the company had shirked its legal obligation to report suspicious orders for controlled substances (see Oxycodone distributor out of control, loses DEA registration, September 15, 2015). Masters filed a petition for review.
Responding to SOMS. For each of the controlled medications that Masters sold, the SOMS program tracked the number of doses that Masters’ customers ordered over the preceding six calendar months and the highest monthly total would be treated as the customer’s "Controlled Substance Limit." If the system placed a hold on the customer’s most recent order, the order was to be reviewed by Masters’ staff. Various other triggers required Masters’ staff to take specified steps to investigate the order and determine whether it was legitimate. However, in the four years after Masters signed the Settlement Agreement, the DEA grew concerned that Masters’ staff was failing to detect and report to the DEA suspicious orders of oxycodone products.
Suspicious versus likely. The ALJ who initially considered the noncompliance allegations concluded that Masters had substantially complied with the Reporting Requirement, and that they only had a duty to report an order held by the SOMS if it was determined that the pharmacy placing the order was likely diverting controlled substances. The ALJ found that Masters had shirked that duty on only one occasion, and that failure to report a single suspicious order did not warrant revocation of Masters’ certificate of registration. She further concluded that Masters had substantially complied with the Shipping Requirement, under which Masters was allowed to ship an order for controlled substances if it conducted enough due diligence to guard against any likelihood that the order would be diverted into unlawful channels.
Upon review by the DEA Acting Administrator, the first part of the ALJ’s recommendation was rejected, and it was concluded that Masters had repeatedly violated the Reporting Requirement. The Administrator explained that the ALJ’s suspicious-order analysis was legally flawed because it misapprehended the standard for reporting an order as suspicious: while the ALJ insisted that an order was suspicious only if Masters had found it "likely" that the order would be diverted away from legitimate channels, the Administrator determined that the amount of evidence needed to raise a "suspicion" was far lower than the amount of evidence needed to show that diversion was "likely."
No violation of due process. Masters further contended that the Administrator violated its due process rights by relying on arguments and evidence that were not presented during the administrative trial. The Due Process Clause gives regulated parties the right to fair notice of the arguments and evidence against them, and an agency may not rely on evidence or arguments that were not discussed at a hearing as a basis for punishing a regulated party. Masters argued that the Administrator impermissibly did just that; Masters relied on arguments the DEA had forfeited and evidence the ALJ had excluded as grounds to revoke Masters’ certificate of registration. However, the court found that the Masters’ argument was belied by the record, and that contrary to its position, the DEA never forfeited the argument that, by April 1, 2009, Masters was on notice that the seven pharmacies involved might be selling opioids illicitly. DEA argued pretrial that pre-April 2009 evidence would be offered at trial to show that Masters had knowledge of potential problems with certain customers.
The case is No. 15-1335.
Attorneys: John A. Gilbert, Jr. (Hyman Phelps & McNamara, PC) for Masters Pharmaceutical, Inc. Anita J. Gay, U.S. Department of Justice, for the U.S. Drug Enforcement Administration.
Companies: Masters Pharmaceutical, Inc.; U.S. Drug Enforcement Administration
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