Masters Pharmaceuticals, Inc.; Decision and Order

Federal RegisterSep 15, 2015

Ask Donna

What actually matters in this document.

Text

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 13-39]

Masters Pharmaceuticals, Inc.; Decision and Order

On August 9, 2013, the Deputy Assistant Administrator, Office of Diversion Control, Drug Enforcement Administration, issued an Order to Show Cause to Masters Pharmaceuticals, Inc. (hereinafter, Respondent). ALJ Ex. 1. The Show Cause Order proposed the revocation of Respondent's DEA Certificate of Registration Number RD0277409, pursuant to which it is authorized to distribute controlled substances in schedules II through V, at the registered location of 11930 Kemper Springs, Cincinnati, Ohio, and the denial of any pending application to renew or modify its registration, on the ground that its “continued registration is inconsistent with the public interest.”

Id.

(citing 21 U.S.C. 824(a)(4)).

The Show Cause Order specifically alleged that on April 21, 2009, Respondent entered into a Memorandum of Agreement (MOA) with DEA, pursuant to which it agreed “to `maintain a compliance program to detect and prevent [the] diversion of controlled substances as required under the [Controlled Substances Act] and applicable DEA regulations.' ”

Id.

(quoting MOA at ¶ II.1.a). The Order also alleged that in the MOA, Respondent “ ‘acknowledg[ed] and agree[d] that the obligations undertaken . . . do not fulfill the totality of its obligations to maintain effective controls against the diversion of controlled substances or to detect and report to DEA suspicious orders for controlled substances.' ”

Id.

The Order then alleged that notwithstanding “the MOA, the specific guidance provided to [Respondent] by DEA, and the public information readily available regarding the oxycodone epidemic in Florida, and in the United States, [Respondent] failed to maintain effective controls against the diversion of controlled substances . . . in violation of 21 U.S.C. 823(b)(1) and (e)(1).”

Id.

at 1-2. The Order then alleged that from April 1, 2009 through December 31, 2009, Respondent distributed more than 37 million dosage units of oxycodone nationally and that nearly 25 million dosage units “were distributed to its Florida customers,” and that the latter distributions “well exceeded” its distributions to customers in other States.

Id.

at 2. The Order further alleged that during 2010, Respondent distributed 37.86 million dosage units of oxycodone nationally, of which nearly 24.4 million dosage units “were distributed to its Florida customers.”

Id.

Finally, the Order alleged that between January 1 and March 31, 2011, Respondent distributed 6.1 million dosage units of oxycodone nationally, of which approximately 2.76 million dosage units “were distributed to its Florida customers.”

Id.

By contrast, the Order alleged that during this period, Respondent distributed approximately 1.47 million dosage units of oxycodone to its Nevada customers, 1.27 million to its Tennessee customers, 1.14 million to its Pennsylvania customers, and 1.09 million to its New Jersey customers. ALJ Ex. 1, at 2.

By contrast, the Order alleged that during 2010, Respondent distributed approximately 2.8 million dosage units of oxycodone to its Nevada customers, 2.14 million to its Tennessee customers, 1.7 million to its New Jersey customers, and 1.37 million to its Pennsylvania customers. ALJ Ex. 1, at 2.

By contrast, the Order alleged that during this period, Respondent distributed approximately 600,000 dosage units of oxycodone to its Tennessee customers, 415,000 to its New Jersey customers, 304,000 to its Pennsylvania customers, and 192,000 to its Nevada customers. ALJ Ex. 1, at 2.

Next, the Show Cause Order alleged that “[s]ince at least 2009, the majority of [Respondent's] largest purchasers of oxycodone . . . have been retail pharmacies in the State of Florida who [it] knew or should have known were distributing controlled substances based on . . . prescriptions that were issued for other than a legitimate medical purpose and outside [of] the usual course of professional practice.”

Id.

at 3. The Order then made allegations regarding Respondent's distributions of oxycodone 30 mg to eight pharmacies. More specifically, the Order alleged that:

1. “From April 1, 2009 through November 30, 2010, [it] distributed approximately 591,800 dosage units . . . to Tru-Valu Drugs”;

2. “From April 1, 2009 through January 31, 2011, [it] distributed approximately 993,100 dosage units . . . to The Drug Shoppe”;

3. “From April 1, 2009 through March 31, 2011, [it] distributed approximately 333,000 dosage units . . . to the Medical Plaza Pharmacy”;

4. “From April 1, 2009 through September 30, 2010, [it] distributed approximately 1.275 million dosage units . . . to Englewood Specialty Pharmacy”;

5. “From April 1, 2009 through December 31, 2010, [it] distributed approximately 570,700 dosage units . . . to City View Pharmacy”;

6. “From January 1, 2009 through November 30, 2010, [it] distributed approximately 1.7 million dosage units . . . to Lam's Pharmacy”;

7. “From April 1, 2009 through August 31, 2009, [it] distributed approximately 637,400 dosage units . . . to Morrison's RX”; and

8. “From January 1, 2009 through December 2009, [it] distributed approximately 351,600 dosage units . . . to Temple Terrace Pharmacy.”

Id.

The Show Cause Order then alleged that Respondent “consistently ignored and/or failed to implement its own due diligence and suspicious order monitoring policies, compromising the effectiveness of those policies.”

Id.

Continuing, the Order alleged that “notwithstanding the large quantities of controlled substances ordered by [its] retail pharmacy customers, [Respondent] failed to conduct meaningful due diligence to ensure that the controlled substances were not diverted” and “ignor[ed] and/or fail[ed] to document red flags of diversion present at many of its retail pharmacy customers.”

Id.

Finally, the Order alleged that Respondent “failed to detect and report suspicious orders of oxycodone products by its pharmacy customers, as required by 21 CFR 1301.74(b).”

Id.

Following service of the Show Cause Order, Respondent requested a hearing on the allegations. ALJ Ex. 3. The matter was placed on the docket of the Office of Administrative Law Judges, and assigned to ALJ Gail Randall (hereinafter, ALJ). ALJ's Recommended Decision (R.D.), at 1. Following pre-hearing procedures,

see generally

ALJ Exs. 5-11, the ALJ conducted an evidentiary hearing on February 24 through 28 and March 3 through 4, 2014, in Arlington, Virginia. Following the hearing, both parties filed briefs containing their proposed findings of fact and conclusions of law.

On June 19, 2014, the ALJ issued her Recommended Decision. Applying the public interest standard of 21 U.S.C. 823(b), the ALJ noted that the relevant factors were factors one—the maintenance of effective controls against diversion—and four—Respondent's experience in the distribution of controlled substances.

The ALJ rejected the Government's contention that Respondent had failed to report numerous suspicious orders, which it filled and shipped, upon subsequently determining that the customer was likely engaged in diverting controlled substances. R.D. at 154-61. Noting that the relevant regulation requires the reporting of a suspicious order “when discovered,” 21 CFR 1301.74(b), the ALJ opined that neither the regulation's language nor its purpose “supports the conclusion that a registrant is required to review past orders from pharmacies the registrant later learns may be diverting controlled

substances.”

Id.

at 157. The ALJ did, however, conclude that the regulation “impose[s] a duty to report past orders [that] the registrant

actually

discovers were suspicious.”

Id.

at 158. However, based on her review of the record, the ALJ concluded that Respondent had only failed to report a single suspicious order.

Id.

Turning to the Government's contention that Respondent had failed to maintain effective controls against diversion, the ALJ concluded that the Government's evidence as to the volume of Respondent's sales to Florida and the eight pharmacies in particular did not support a finding that it was in violation of this duty.

Id.

at 164-67. As the ALJ explained, “the sheer volume of a respondent's controlled substances sales or purchases, without some kind of contextual background to link the sales to the respondent's duty under the CSA, cannot be used to indicate that the distributor's registration would be against the public interest.”

Id.

at 164. The ALJ further noted that the Government did not present a “statistical expert or any other evidence to explain why the volume of Respondent's sales was necessarily indicative of diversion.”

Id.

at 166. She also credited the testimony of Respondent's statistical expert that the “shipments to the DEA-identified pharmacies rarely stand out from the rest of the monthly shipments”; that because Respondent does not have access to the Agency's ARCOS database, “it cannot compare its shipments to [those] made by other distributors”; that “Respondent's business model as a secondary supplier made comparisons across pharmacies practically useless”; and that comparing its distributions to Florida customers with those in other States was not “very meaningful because there [are] so many factors that are relevant.”

Id.

at 167 (citations omitted).

Next, the ALJ rejected the Government's contention that Respondent failed to follow its own policies and procedures.

Id.

at 170-79. The ALJ first found that Respondent's Policies and Procedures required that an order placed on compliance hold by its Suspicious Order Monitoring System (SOMS) be subject to additional due diligence which included: (1) Contacting the customer to discern the reason for the deviation in size, pattern, or frequency; (2) independently verifying the reason stated by the customer; and (3) conducting a complete file review.

Id.

at 73-74, 76-77. While the Government cited numerous instances in which Respondent's employees released orders without documenting having performed the above steps, the ALJ rejected its contention, reasoning that Respondent's Policies and Procedures did “not require documentation of the reasons for the release of a held order.”

Id.

at 171. And while noting “that Respondent documented some reasons for abnormal orders,” she further reasoned that “[t]he mere absence of documentation—documentation that is not required by Respondent's Policies and Procedures, DEA regulations, or any established industry standard—does not constitute substantial evidence that the undocumented act did not occur.”

Id.

at 172;

see also

Tr. 997 (testimony of Respondent's former Vice-President that because it was a tertiary supplier, demand “is very elastic” and that “it was very hard to pinpoint a demand from a customer who bought from you very infrequently”).

Respondent is the holder of DEA Certificate of Registration Number RD0277409, pursuant to which it is authorized to distribute controlled substances in schedules II through V, at the registered location of 11930 Kemper Springs, Cincinnati, Ohio. GX 1. While this registration was due to expire on January 31, 2014, on December 10, 2013, Respondent filed a timely renewal application. 21 CFR 1301.36(i). Accordingly, Respondent's registration has remained in effect pending this Decision and Final Order. 5 U.S.C. 558(c); 21 CFR 1301.36(i).

DEA Guidance to Distributors on Reporting Suspicious Orders and Maintaining Effective Controls Against Diversion

Prior to the events at issue here, the Deputy Assistant Administrator, Office of Diversion Control, wrote two letters which were sent to all registered distributors including Respondent. GXs 3 & 4. The letters discussed the requirements imposed by 21 CFR 1301.74 for reporting suspicious orders and the scope of a registrant's obligation “to maintain effective controls against the diversion of controlled substances into other than legitimate medical, scientific, and industrial channels.” GX 3, at 2. The first letter, which was dated September 27, 2006, set forth the text of 21 CFR 1301.74(b):

The registrant shall design and operate a system to disclose to the registrant suspicious orders of controlled substances. The registrant shall inform the Field Division Office of the Administration in his area of suspicious orders when discovered by the registrant. Suspicious orders include orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.

Id.

(quoting 21 CFR 1301.74(b)). Continuing, the letter noted that “in addition to reporting all suspicious orders, a distributor has a statutory responsibility to exercise due diligence to avoid filling suspicious orders that might be diverted into other than legitimate . . . channels.”

Id.

The letter then explained that “a distributor may not simply rely on the fact that the person placing the suspicious order is a DEA registrant and turn a blind eye to the suspicious circumstances” and that a “distributor should exercise due care in confirming the legitimacy of all orders prior to filling.”

Id.

The letter also set forth various characteristics found by the Agency to be present in pharmacies engaged in diverting controlled substances. These included,

inter alia,

“[o]rdering excessive quantities of a limited variety of controlled substances . . . while ordering few, if any, other drugs,” and ordering the controlled drugs “in quantities disproportionate to the quantity of non-controlled medications ordered.”

Id.

at 3.

The letter also provided a list of suggested questions for distributors to ask in “determin[ing] whether a suspicious order is indicative of diversion of controlled substances.”

Id.

While most of these questions focused on whether a pharmacy was engaged in the unlawful distribution of controlled substances through internet schemes in which physicians prescribed drugs to patients with whom they had not established a legitimate doctor-patient relationship, some of the questions were applicable to all pharmacies. These included: (1) “[w]hat percentage of the pharmacy's business does dispensing controlled substances constitute?” (2) “[a]re one or more practitioners writing a disproportionate share of the prescriptions for controlled substances being filled by the pharmacy?” and (3) “[d]oes the pharmacy charge reasonable prices for controlled substances?”

Id.

The letter then explained that “[t]these questions [were] not all-inclusive” and that “the answer to any of the[ ] questions” would not “necessarily determine whether a suspicious order is indicative of diversion.”

Id.

Finally, the letter concluded by advising that “[d]istributors should consider the totality of the circumstances when evaluating an order for controlled substances.”

Id.

On December 27, 2007, the Deputy Assistant Administrator sent a second letter to all registered distributors including Respondent, the purpose of which was “to reiterate the responsibilities of controlled substance manufacturers and distributors to inform DEA of suspicious orders in accordance with 21 CFR 1301.74(b).” GX 4, at 1.

After reciting the regulatory text that “suspicious orders include orders of an unusual size, orders deviating substantially from a normal pattern, and orders of an unusual frequency,” the letter explained that “[t]hese criteria are disjunctive and are not all inclusive.”

Id.

(quoting 21 CFR 1301.74(b)). Continuing, the letter explained that:

If an order deviates substantially from a normal pattern, the size of the order does not matter and the order should be reported as suspicious. Likewise, a registrant need not wait for a “normal pattern” to develop over time before determining where a particular order is suspicious. The size of an order alone, whether or not it deviates from a normal pattern, is enough to trigger the registrant's responsibility to report the order as suspicious. The determination of whether an order is suspicious depends not only on the ordering patterns of a particular customer, but also on the patterns of the registrant's customer base and the patterns throughout the relevant segment of the regulated industry.

Id.

The letter further explained that a registrant's “responsibility does not end merely with the filing of a suspicious order report” and that a “[r]egistrant[] must conduct an independent analysis of suspicious orders prior to completing a sale to determine whether the controlled substances are likely to be diverted from legitimate channels.”

Id.

Continuing, the letter warned that “[r]eporting an order as suspicious will not absolve the registrant of responsibility if the registrant knew, or should have known, that the controlled substances were being diverted.”

Id.

The letter thus advised that a registrant which “routinely report[s] suspicious orders, yet fill[s] these orders without first determining that [the] order[s] [are] not being diverted . . . may be failing to maintain effective controls against diversion” and engaging in acts which are “inconsistent with the public interest.”

Id.

at 2.

The Previous Agency Proceeding Against Respondent

On October 17, 2008, the Deputy Assistant Administrator, Office of Diversion Control, issued an Order to Show Cause to Respondent alleging that it had “failed to maintain effective controls against diversion of particular controlled substances” in that it “distributed large amounts of hydrocodone,” then a schedule III narcotic,

“to customers it knew, or should have known, were diverting the [drug] into other than legitimate medical, scientific and industrial channels.” GX 5, at 1. The Order further alleged that Respondent “distributed extraordinarily large amounts of hydrocodone to” two pharmacies, which were “rogue Internet pharmacies that filled prescriptions that were not issued for a legitimate medical purpose

in the usual course of professional practice.”

Id.

The Government alleged that Respondent's sales to the two pharmacies “were consistently high compared to [its] sales of hydrocodone to other customers,” with one of the pharmacy's purchases “increase[ing] dramatically” to a peak of more than 1.1 million dosage units in a single month, and the other pharmacy's purchases increasing from 30,000 to more than 156,000 dosage units in one month.

Id.

at 2. The Government also alleged that “based upon the amounts and patterns of the hydrocodone orders and because DEA made [Respondent] aware of illegal Internet activity just prior to the unusual increases in distributions of hydrocodone to these customers,” Respondent “knew or should have known” that the pharmacies “were engaged in illegal activity” and yet it “failed to report [their] orders . . . as `suspicious,' as required by” 21 CFR 1301.74(b).

Id.

Combination hydrocodone products have since been placed into schedule II of the CSA.

See Rescheduling of Combination Hydrocodone Products From Schedule III to Schedule II,

79 FR 11037 (2014).

The Government further alleged that Respondent distributed hydrocodone to two other pharmacies, with common ownership, notwithstanding that it had obtained information “that clearly indicated that these pharmacies were operating as . . . rogue Internet pharmacies . . . and failed to report such orders as suspicious.”

Id.

Finally, the Government alleged that “[t]hroughout 2007 and 2008, [Respondent] . . . continued to fill orders for controlled substances from rogue Internet pharmacies and . . . failed to file suspicious order reports on such orders, in circumstances in which [it] knew or should have known that the pharmacies were operating illegally.”

Id.

On April 1, 2009, the Government and Respondent resolved the allegations by entering a settlement and release agreement, as well as an Administrative Memorandum of Agreement (MOA). GX 6. While Respondent was not required to admit to any of the allegations, it agreed to pay the Government the amount of $500,000 to settle “claims or potential claims for civil penalties . . . for failing to report suspicious orders of controlled substances” in violation of 21 U.S.C. § 842(c).

Id.

at 2, 4.

Respondent also “agree[d] to maintain a compliance program designed to detect and prevent diversion of controlled substances as required under the CSA and applicable regulations.”

Id.

at 2. The program was to “include procedures to review orders for controlled substances,” and further provided that orders “exceed[ing] established thresholds and meet[ing] other criteria as determined by [Respondent would] be reviewed by [an] employee trained to detect suspicious orders for the purposes of determining” either that the “order[] should not be filled and reported to . . . DEA” or that order was “not likely to be diverted into other than legitimate medical, scientific or industrial channels.”

Id.

Respondent further agreed that these obligations “do not fulfill the totality of its obligations to maintain effective controls against the diversion of controlled substances or to detect and report to DEA suspicious orders for controlled substances.”

Id.

Respondent also agreed that it would review its distributions of oxycodone, hydrocodone, alprazolam, and phentermine to its retail pharmacy and physician customers for the 18-month period prior to the signing of the MOA and identify those current customers which “exceeded the thresholds or met other criteria established in its compliance program on the date of such review.” GX 6, at 3. Respondent agreed that “[t]o the extent it has not otherwise done so, [it] shall conduct an investigation for each customer where such review reveals purchasing patterns substantially deviating from the normal purchasing patterns observed . . . for that customer, and take appropriate action as required by this Agreement, DEA regulations and other procedures established under Masters' compliance program.”

Id.

Pursuant to the MOA, DEA agreed to “conduct a review of the functionality of [Respondent's] diversion compliance program at [its] distribution center,” including a “review [of] the investigatory files maintained by [it] of the customers serviced by the distribution center.”

Id.

at 4-5. DEA also agreed to “conduct an exit interview with [Respondent's] representatives to provide DEA's preliminary conclusions regarding the Compliance Review.”

Id.

The MOA further provided that that review would be “deemed satisfactory unless DEA determine[d] that the facility” did not “maintain effective controls against diversion,” “failed to detect and report . . . suspicious orders . . . after April 1, 2009,” or “failed to meaningfully investigate new or existing customers regarding the customer's legitimate need to order or purchase controlled substances.”

Id.

Moreover, the MOA provided that “[t]he Compliance Review shall be deemed `not satisfactory' if DEA provides written notice with specificity to [Respondent] on or before 220 days from the Effective Date of [the MOA], stating that [Respondent had] failed to meet any of the requirements,” apparently pertaining to maintaining effective controls against diversion, failing to detect and report suspicious orders, and failing to meaningfully investigate its customers.

Id.

However, DEA also agreed that it would not “find the Compliance Review `not satisfactory' unless the failure(s) [we]re sufficient to provide . . . a factual and legal basis for issuing an Order to Show Cause under 21 U.S.C. § 824(a) against the inspected facility.”

Id.

Moreover, the MOA provided that “[a] finding of `satisfactory' does not otherwise express DEA's approval of Master's compliance program.”

Id.

The MOA specifically referred to “the requirements in either subsections II(2)(d)(i),(ii), or (iii) of this Agreement.” GX 6, at 5. The provisions this sentence references are simply clauses within a single sentence and are not separate subsections.

Finally, DEA agreed to release Respondent from administrative claims “within [its] enforcement authority under 21 U.S.C. 823, 824 and 842, based on the Covered Conduct,” as well as “the conduct alleged in [the first] Order to Show Cause.”

Id.

at 6. However, the MOA further provided that “[n]otwithstanding the releases by DEA contained in this Paragraph, DEA reserved the right to seek to admit evidence of the Covered Conduct for proper evidentiary purposes in any other administrative proceeding against the Released Parties (

i.e.,

Respondent) for non-covered conduct.”

Id.

On August 17, 2009, two DEA Diversion Investigators (DIs) went to Respondent's Kemper Springs location to conduct the compliance review and provide training to Respondent regarding its obligations under the Controlled Substances Act. Tr. 90, 92-93. Respondent's attendees included Dennis Smith, CEO; Wayne Corona, then Vice-President; Matt Harmon, then Compliance Manager; Jennifer Seiple, Vice-President of Compliance; and Eric Schulze, Compliance Clerk.

As part of the review, one of the DIs reviewed the CSA's requirements for inventories; records, including the use of schedule II order forms; and reports, including the regulation governing the reporting of suspicious orders. GX 11. The other DI, who had queried DEA's Automation of Reports and Consolidated Orders System (hereinafter, ARCOS), a database used to track the acquisition and distribution of various controlled substances including,

inter alia,

all schedule II drugs and schedule III narcotics, obtained data of Respondent's distributions between January 2007 and June 2009 and created several charts, which he presented to Respondent's representatives. GX 48A. According to the DI, he intended to show Respondent that oxycodone (a schedule II narcotic drug) and hydrocodone (then a schedule III narcotic drug when combined typically with acetaminophen but now a schedule II narcotic drug) comprised the majority of the controlled substances it distributed during this period; that the majority of the oxycodone and hydrocodone it distributed was in “the

most commonly abused dosage strengths”; and that the majority of the oxycodone it sold was distributed to its customers in Florida, which he characterized as “the epicenter of the oxycodone epidemic.”

GX 48A, at 3. The DI also testified that he presented Respondent with data and a chart showing its distributions of oxycodone to several of the pharmacies during the period of January through June 2009, including Morrison's RX (672,600 dosage units), Lam's Pharmacy (522,500), Englewood Specialty Pharmacy (262,700), and The Drug Shoppe (242,700).

Id.

at 5; GX 12, at 23. The DI testified that his intent in doing so “was to alert [Respondent] to potentially problematic trends that [he] perceived based upon [its] ARCOS reporting.” GX 48A, at 5-6.

Other testimony described the extent of the oxycodone epidemic in Florida during this period, including that between 2005 and 2010, the State experienced a 345 percent increase in narcotic-related overdose deaths, with 11 people dying per day in 2010, as well as an increase from 250 to 1,400 in the number of newborns who were addicted to oxycodone per year. Tr. 28.

The State eventually enacted legislation requiring that a physician and clinic “primarily engaged in the treatment of pain by prescribing or dispensing controlled substance[s]” register as a pain management clinic with the Florida Department of Health and limited the authority of dispensing physicians in such clinics to dispensing a 72-hour supply of narcotics to those patients who paid for the drugs “by cash, check, or credit card.” Fla. Stat. §§ 458.3265(1)(a) (2010), 465.0276(1)(b) (2010). The following year, the State enacted legislation which barred physicians from dispensing schedule II and III controlled substances except in even more limited circumstances. Fla. Stat. § 465.0276 (2011);

see also

Tr. 31. Based on the extensive abuse of oxycodone in Florida, in July 2011 the State's Surgeon General declared a public health emergency. Tr. 30-31; GX 47.

The DI further testified that he specifically identified Lam's as a customer they “[s]hould be `looking at.'” GX 48A, at 6.

Consistent with the DI's testimony, a former employee of Respondent who attended the briefing testified that the DI very clearly expressed his concerns about Respondent's continued sales of oxycodone 30 mg, which he explained was the most abused form of oxycodone, to Morrison's, Englewood, The Drug Shoppe, and Lam's. Tr. 1155. The former employee further testified that as the DI reviewed Respondent's files for these pharmacies and looked at their sales volume, he would turn and look at Ms. Seiple (the Compliance Director) and ask: “You're not selling to this guy, are you, Jennifer?”

Id.

at 1156.

I have considered Respondent's contention that the ALJ “incorrectly found that DEA very clearly expressed concerns about” these four pharmacies during the Compliance Review. Resp. Exceptions, at 19. Having reviewed the record, I reject the contention.

Also, at the hearing, Mr. Corona admitted that oxycodone 30 mg “was a highly abused substance” and that it was “being obtained surreptitiously and unlawfully down in Florida.”

Id.

at 1071-72. Mr. Corona acknowledged that Respondent and its CEO were “aware of the `oxycodone epidemic' stemming from Florida” and that “[t]his was common knowledge at [Respondent] as well as in the pharmaceutical industry in general.” GX 51B, at 9 ¶ 31. He further testified that Florida was “the `wild west' and . . . a `free for all' when it came to sales and dispensing of oxycodone.”

Id.

The DI also testified that a document entitled “Suggested Questions a Distributor should ask prior to shipping controlled substances” was presented to Respondent at the review. Tr. 223-24;

see also

RX 13. One of the suggested questions was: “What is the pharmacy's ratio of controlled v. non-controlled orders?” RX 13, at 1. Next to it is the handwritten notation: “RATIO C20—NC 80.”

Id.

However, on cross-examination, the DI testified that nothing in the “training materials,”

i.e.,

the PowerPoint presentation,

see

GX 11, addressed how Respondent should evaluate the ratios of controlled to non-controlled drugs ordered by a pharmacy, Tr.114, and he did not recall what specific discussions he had with Respondent's representatives regarding the ratio of controlled to non-controlled substances.

Id.

at 182. He also acknowledged that he did not provide training “concerning the proper use of drug utilization reports,”

id.

at 114, and that he was not asserting that Respondent was using the utilization reports in a manner inconsistent with its written policies and procedures.

Id.

at 132. Nor did he tell Respondent that it was analyzing the information contained in the customer files incorrectly,

id.

at 115, including the URs which were in the due diligence files Respondent kept for Morrison's, Englewood, The Drug Shoppe, and Lam's.

Id.

at 141.

However, recalling the briefing provided by DEA, Mr. Corona testified that:

DEA provided information regarding specific questions to ask Masters' customers on due diligence questionnaires and during site visits. These questions were designed to gather information to allow Masters to identify “red flags” that may indicate that a particular customer was involved in illegitimate dispensing of controlled substances. In particular, DEA advised us to focus on whether a customer had a high percentage of cash for controlled substance prescriptions (as compared to third-party insurance payment), refused to accept insurance for the payment of controlled substance prescriptions, and/or dispensed a high percentage of controlled substances as compared to non-controlled substances.

GX 51B, at 4 ¶ 12.

During the review, Respondent also made a presentation to the DIs regarding its controlled drug handling policies and procedures. RX 12. As part of the presentation, Respondent stated that all new controlled substance customers were required to provide “a valid DEA registration number,” which it verified using the National Technical Information Service database.

Id.

at 11-12. Also, new customers were required to “[c]omplete a survey designed to screen customers for inappropriate business activity,” which included questions as to how many prescriptions the customer filled per day and how many were for controlled substances, whether the pharmacy did mail order or internet business, and whether the pharmacy filled prescriptions for out-of-area or out-of-state doctors or patients.

Id.

at 15. Respondent further represented that it reviewed the survey responses to determine if the customer was engaged in “inappropriate business practices” “[]prior to shipping even one controlled drug,” and that if the responses were “not indicative of inappropriate practice,” it would approve the customer to purchase controlled substances.

Id.

at 16.

As for its existing customers, Respondent stated that beginning in October 2008, it had conducted more than 5,800 surveys and that “[a]ll customers eligible to purchase controlled drugs . . . ha[d] undergone [its] due diligence process and been approved by [the] Compliance Department.”

Id.

at 19. Respondent further represented that since January 1, 2008, it had conducted 346 site visits of customers located in California, Florida, Kentucky, Nevada, Ohio, Tennessee, and West Virginia.

Id.

at 20.

Respondent also briefed the DIs regarding its Suspicious Order Monitoring System (hereinafter, SOMS). More specifically, Respondent explained that every order containing at least one controlled substance was tracked by calendar month and that any time a customer placed a new order that would result in the customer receiving more controlled drugs (by drug family) in the past 30 days than its highest monthly total in any of the previous six calendar months, the order was held for review and could not be shipped until it was released by the Compliance Department.

Id.

at 25-29. Respondent

also stated that the SOMS was designed to place holds based on a change in a customer's order patterns.

Id.

at 27.

Under the SOMS, Respondent assigned a Controlled Substance Limit (CSL) for each drug family ordered by a customer. According to a

document describing the SOMS, upon the completion of the initial due diligence, the Compliance Department would assign a default monthly limit for each control [sic] drug group based on the “information derived from the initial due diligence.” GX 35, at 15. This limit would set the number of doses that a customer could receive at a particular registered location “in any given 30 day period,” but could “be edited for a period of six months after the first purchase of each control [sic] [drug] group.”

Id.

However, according to its policies and procedures, Respondent did not require that new controlled substance customers provide a utilization report showing their actual dispensings of prescription products prior to setting the initial monthly limit. Rather, under its policies and procedures, obtaining a UR was a discretionary act even when Respondent deemed it necessary to conduct additional due diligence on a new customer. RX 78, at 30-31.

According to the testimony of a former compliance department employee, based on the number of prescriptions a customer reported that it filled on a daily basis (which was typically only an estimate), Respondent would place the customer in one of three tiers and assign the initial monthly limit of dosage units for each controlled substance family (

e.g.,

oxycodone). Tr. 1380-82. While there is testimony to the effect that the tiers were set at either “5, 10, or 15” thousand dosage units, it is unclear whether this applied to each controlled substance family. Tr. 627 (testimony of DI). Of further note, there is no evidence as to how Respondent determined the number of dosage units for each controlled substance family and tier.

According to the materials Respondent provided (

i.e.,

the SOMS Appendix), “[a]fter six months of full history for a control [sic] [drug] group, the customer invoice history will be used to determine the monthly limit for each control [sic] [drug] group,” with an “update . . . occur[ing] on the first of every month.” RX 78, at 59-60. However, “[t]he highest monthly total [including product that was returned] from the preceding six months will be used as the new Monthly Limit for [a] control [sic] [drug] group.”

Id.

at 60.

As for the determination of whether an order “is invalid” because of its “size,” Respondent represented that this is made by adding “the total number of doses invoiced in the past 30 days [on a rolling basis] plus the total doses on open orders plus the number of doses on the received order[s] and compar[ing] it to the monthly limit.”

Id.

According to Respondent's former Vice President, even if an order placed a customer one pill over its CSL for a controlled drug group, the order would be placed on hold and trigger a review. Tr. 1001.

Respondent represented that every controlled substance order “go[es] through SOMS even before our system checks to see if we have the ordered items in stock,” and that “[i]f the order and the account history meets [sic] or exceeds [sic] the criteria set in [the] SOMS, the order is held for review,” which involved the Compliance Staff conducting “additional due diligence” and determining whether the order could be shipped.

Id.

at 30. Respondent further represented that if its Compliance Staff “reject[ed] the order,” it was “considered `suspicious' ” and would be “reported to . . . DEA” and the customer's controlled substance ordering privileges would be “suspended indefinitely.”

Id.

Finally, Respondent represented that “[d]ocumentation on all orders held for review and their dispositions are permanently retained.”

Id.

(emphasis in original).

see also

RX 78. Because the written policy and procedures provide additional detail beyond that which was discussed in the slides used in Respondent's PowerPoint briefing, relevant provisions are discussed below.

Respondent's Policy 6.1 set forth the requirements to purchase controlled drugs. RX 78, at 30. These requirements included that any customer “possess a valid, unexpired DEA registration” in the appropriate drug schedules; that it provide its “registration number and/or a copy of the registration”; and that Respondent would validate the customer's registration though the NTIS (National Technical Information Service) database.

Id.

The Policy also required Respondent to “perform sufficient due diligence on all customers in order to prevent the diversion of controlled drugs.”

Id.

This included a survey; the authentication of the licenses of the facility, pharmacist-in-charge, and practitioners; a check of publicly available disciplinary records for recent disciplinary actions; and review by a compliance manager.

Id.

The Policy further provided that “[a]dditional due diligence shall be required of any customer when any of the following issues are indicated” to include that: (1) There were “[s]ignificant, recent, and/or relevant disciplinary actions relating to the handling of controlled drugs”; (2) a customer was distributing controlled substances over the internet or by mail order; (3) a customer was “diverting controlled drugs through any other means”; (4) a “customer place[d] a potentially suspicious order”; and (5) the compliance manager conducting the review required more information.

Id.

at 30-31. The Policy then stated that the additional due diligence could “include any or all of the following steps, as determined by the compliance manager”: (1) Obtaining “[d]rug [u]tilization [r]ecords”; (2) conducting a site visit; (3) inquiring of law enforcement agencies; (4) checking with “common carriers to determine if the [customer] is using their services; and (5) “[a]cquiring a commercial credit report . . . to verify the survey information provided by the customer.”

Id.

at 31.

Respondent's Policy 6.2 sets forth its requirements and procedures for monitoring and reporting suspicious orders.

Id.

at 32. According to Respondent, the SOMS did four things: (1) It “[t]racks each customer's purchase history for controlled drugs”; (2) it “[r]eviews every order for controlled drugs . . . prior to shipment”; (3) it “[h]olds all orders for controlled drugs that meet or exceed the criteria set forth in 21 CFR 1301.74(b)” (the suspicious order reporting regulation); and (4) it “[r]equires each order to be individually reviewed prior to shipment.”

Id.

The Policy then set forth Respondent's procedures for those orders that were placed on hold by the SOMS.

Id.

These procedures required that “[a] compliance staff member call[] the customer and request[]” both: (1) “[a]n explanation for the order,” which was to be “independently verified”; and (2) “[a] current utilization report, listing all of the pharmaceuticals” (including both controlled and non-controlled) dispensed by the pharmacy “in the most recent calendar month.”

Id.

The procedures also required that “[t]he customer's entire file” be reviewed, including its “initial survey,” its “order

history with” Respondent, and “[t]he site visits report(s),” if available.”

Id.

According to the Policy, orders held for review would be released and filled when the order was found to be “consistent with the customer's utilization report,” and the review of “the customer's file, including [its] survey responses and site visits” was found to be “consistent with legitimate business practices.”

Id.

The Policy further directed that a held order would not be filled upon a finding that the order was inconsistent with the utilization report, the file review “indicate[d] that the customer may be engaged in inappropriate business practices,” or “[t]he customer refuses to provide . . . the information necessary to complete its evaluation.”

Id.

at 32-33. Moreover, the Policy directed that “[a]ll orders . . . held for review that [Respondent did] not fill for [these] reasons . . . shall be considered `Suspicious Orders' according to 21 CFR 1301.74(b) and reported to” DEA.

Id.

at 33. Finally, upon the determination that an order was suspicious, Respondent's policy required that “the customer's ordering privileges for controlled drugs . . . be suspended indefinitely.”

Id.

see also

Tr. 1161-62. Therein, Harmon proposed various steps which Respondent should take in response to the DEA review. Harmon proposed that Respondent use the pharmacies' utilization reports to “[i]dentify pharmacies” whose dispensings of controlled drugs and other drugs of concern (tramadol and carisoprodol) comprised “50% or more of their” dispensings and if so, then determine if “over half of their purchases in each drug family [were of] either the highest strength or otherwise frequently diverted drug products.”

Id.

Harmon then listed five products: “oxycodone 30 mg,” “methadone 10 mg,” “hydrocodone 10 mg,” “alprazolam 2 mg,” and “codeine syrup,” both “with or without promethazine.”

Id.

at 1. Harmon then proposed that if both conditions were present with respect to a pharmacy, Respondent “need[ed] to suspend controlled sales to” the pharmacy until it concluded an investigation. Harmon also explained that “[w]e should assume that every pharmacy meeting the above criteria is engaged in inappropriate business activity until proven otherwise.”

Id.

Harmon further proposed that Respondent's investigation of such pharmacies focus on four questions: (1) Was there “a strong independently verifiable, legitimate reason for this pattern?”; (2) was the pharmacy “selling a full range of non-controlled pharmaceuticals?”; (3) were “the

majority of the[] controlled drug prescriptions paid for with insurance?”; and (4) did the pharmacy “sell front-store items?” Harmon added that those customers who met “only some of these criteria should be subjected to additional due diligence prior to any sale.”

Id.

The Government's Evidence of Respondent's Sales of Oxycodone During the Period of April 1, 2009 Through March 31, 2011 to the Seven Florida Pharmacies

The main focus of the Government's case was Respondent's sales of oxycodone to seven Florida-based pharmacies during the height of the State's oxycodone crisis. Based on data submitted by Respondent through ARCOS, the Government prepared a spreadsheet of the purchases of oxycodone 15 and 30 mg by the seven pharmacies (as well as Lam's Pharmacy, which was located in Las Vegas, Nevada) identified in the Show Cause Order during the following periods: (1) April 1, 2009 through December 31, 2009; (2) calendar year 2010; and (3) January through March 2011. It also prepared spreadsheets listing the pharmacies' monthly purchases of both drugs from Respondent.

The Government also submitted two tables purporting to show the total number of oxycodone dosage units Respondent sold to its customers in each State during the years 2009 through 2012, as well as its average monthly sale per customer during each year.

See

GXs 10B & 10L. The ALJ found the data unreliable because the first of these tables shows that Respondent distributed nearly 25 million dosages in 2009 to its Florida customers, which was approximately 67 percent of its total oxycodone distributions, while the second of these tables, which was submitted as a rebuttal exhibit—after Respondent discredited the Government's calculation of its average monthly sale per customer in each State—shows that Respondent had sold an additional 7.6 million dosage units to its Florida customers and that this comprised approximately 66 percent of its total distributions. However, there was little change between the data in the two exhibits for calendar years 2010 and 2011. The 2010 data show that Respondent distributed 24,389,400 dosage units to its Florida customers (according to GX 10B) and 24,387,800 to its Florida customers (according to table 10L); the tables show that Respondent's total distributions were 37,866,700 (according to GX 10B) and 37,859,300 (according to GX 10L). The ALJ did not address why this portion of the data is unreliable. Moreover, Respondent did not dispute that it “distribute[d] a lot of oxycodone to the state, lots of it.” Tr. 1837 (closing argument of Respondent's counsel).

However, I agree with the ALJ that the data as to its total sales in Florida do not establish that Respondent failed to maintain effective controls against diversion. R.D. at 27 n.22, 164-67. I also find unpersuasive the Government's proffered comparison of Respondent's Florida sales with its sales to its customers in other States including Texas, California, and New York, which the Government argues were “similarly situated” in terms of demographics and the number of medical establishments. Gov. Post-Hrng. Br. 104-06. Accordingly, I reject the allegation that the volume of dosage units distributed to the pharmacies alone establishes that Respondent “knew or should have known” that the “prescriptions were issued for other than a legitimate medical purpose and outside the usual course of professional practice.” ALJ Ex. 1, at 3 (Order to Show Cause, at ¶ 5).

I also agree with the ALJ's conclusion that the Government's calculations of the average monthly purchase of oxycodone by Respondent's customers (as reflected in both exhibits) are flawed. R.D. 27 n.22. As for the calculations in GX 10B, the Government conceded that these were erroneous because each transaction was treated as if it was made by a separate pharmacy, Tr. 1736, and thus the number of pharmacies used to calculate the average was off by a factor of 14 for the 2009 calculation and 24 for the 2010 calculation.

Compare

GX 10B

with

GX 10L.

Similarly, while the calculations in GX 10L may have been based on an accurate number of pharmacies, I agree with the ALJ that the calculations are flawed because they did not take into account that Respondent's customers did not necessarily purchase oxycodone each month and thus suffer from aggregation bias. R.D. 27 n.22;

see also

Tr. 1625-26, 1755-57. Indeed, I note that while GX 10L was submitted after Respondent's expert pointed out this flaw in the Government's initial calculations, the Government still submitted calculations that did not correct for aggregation bias.

In December 2010, a DI with the Detroit Field Division was directed to conduct an investigation as to whether Respondent was complying with the 2009 MOA. GX 49B, at 7, ¶ 10. After reviewing data showing Respondent's distributions of various controlled substances (which showed that oxycodone comprised more than 60 percent of its distributions during 2009 and 2010, and that 44 of its top 50 oxycodone customers were located in Florida), on Feb 8, 2011, the DI (accompanied by two other DIs) went to Respondent's Kemper Springs facility to determine whether Respondent had “created and implemented a system designed to maintain effective controls against diversion.”

Id.

at 8. The DIs met with Wayne Corona (Respondent's President and Chief Operating Officer), Jennifer Seiple, and Matthew Harmon, and reviewed various records.

Id.

at 8-9.

According to a DI, Corona stated that Respondent's “employees were aware of the diversion problems with oxycodone in Florida” but did not “consider the geographic locations of its Florida pharmacy customers.”

Id.

at 9.

Corona also stated that he was aware of the fact that DEA had suspended the registration of Harvard Drug Group, L.L.C., based on its distributions of oxycodone to Florida and that Respondent had been “flooded with contacts from Harvard['s] customers inquiring about oxycodone products after” the suspension of Harvard's registration.

Id.

Indeed, at the hearing, both Messrs. Corona and Smith testified that in early 2009, Smith, accompanied by another employee, travelled to Florida to check out the situation. Tr. 1033, 1665. At the time, Respondent was supplying pain clinics which engaged in the direct dispensing of controlled substances to patients. On his return, Smith decided to cut off the pain clinics. As Corona explained:

He [Smith] said he couldn't believe what was going on in Florida with respect to the pain clinics because he had seen park benches and bus stop benches advertising pain clinics, and he brought back a copy of City Beat with I forget how many pages of nothing but ads for pain clinics with young kids sitting around a pool in bathing suits with big smiles on their face [sic], and he said this was an issue and we're not going to participate in this anymore. So he effectively that day cut everybody off.

Tr. 1074. In his testimony, Smith confirmed Corona's recollection of the impetus for the decision to cut off the pain clinics. He testified that:

I was down there a couple of days, two or three days. We looked at the pain clinics. We looked at certain areas of town that some of the pain clinics were located in. We also got a copy of City Beat, which was a monthly or a weekly—one of those free catalogs you often see outside of restaurants—and started going through it and identified that towards the back there were a lot of advertisements for pain clinics that I thought were very unethical. It would show young people sitting around a pool and it named the pain clinic and say [sic] we dispense on site, and that really hit home hard.

Tr. 1665-66;

see also

RX 104, at 19 (Smith Decl. at ¶ 73).

Smith did not, however, cut off the pharmacies. According to Corona, this was because Smith believed that Respondent could rely on the pharmacies to vet the physicians who were writing the prescriptions. Corona then asserted that “[w]e all knew that a licensed professional in the health care field would for the most part behave ethically and legally,”

id.

at 1075, even though Smith testified that he had concerns about the ethics and legality of the conduct engaged in by pain-clinic physicians.

Id.

at 1665-66.

So too, while Smith admitted that he knew that oxycodone was the primary drug being sought for illicit use in Florida,

id.

at 1668, he asserted that he “put a lot of thought into it, and I just felt that there should be segregation of duties, that the physician should write and the pharmacy should dispense, and that was an added line of due diligence on the part of the pharmacy.”

Id.

at 1666. Apparently, the possibility that pharmacists might also act unethically or illegally never occurred to him, even though Smith was obviously aware of this possibility from his experience in addressing the allegations of the previous Show Cause Order that Respondent supplied pharmacies that were unlawfully distributing controlled substances via the internet.

As part of the investigation, the DI served several administrative subpoenas on Respondent and obtained the record for 21 pharmacies including Tru-Valu Drugs, Inc.; The Drug Shoppe, Inc.; Morrison's RX, Inc.; City View Pharmacy; CIFII Corp, d/b/a Lam's Pharmacy; Englewood Specialty Pharmacy, Inc.; Medical Plaza Pharmacy of Plantation, L.L.C.; and Temple Terrace Pharmacy, d/b/a Superior Pharmacy. GX 49B, at 14; 59 n.15; 87 n.18. The DI reviewed these files, which were maintained by Respondent's compliance department and contained customer questionnaires, pharmacy evaluations, site visit forms, Memos for Record (MFRs), Ship to Memos, SOMS

Notes, Utilization Report (URs), and other forms and emails.

Id.

at 16.

According to the DI, his review showed that Respondent “regularly ignored inconsistencies in information provided by controlled substance customers, including extremely high percentages of controlled substances being distributed by the pharmacy, significant percentages of cash sales, and other indicators of potential diversion.”

Id.

at 16-17. The DI further asserted that the documents showed that Respondent “deleted or edited orders that would bring customers above their threshold limit” and that it also “routinely utilized a `release with reservation' or `ship with reservation' (`RWR or SWR') designation and thus allowed orders that [it] should have viewed as potentially suspicious [to] be shipped.”

Id.

at 17. Finally, the DI alleged that Respondent “ignored or failed to act on information it reviewed during on-site inspections that were significant indicators of potential diversion.”

Id.

The Pharmacy Specific Evidence

Before proceeding to make findings specific to each of the Florida pharmacies,

a discussion of the parties' exceptions which bear directly on the weight to be given to the pharmacy-specific evidence is warranted. These include the Government's exception to the ALJ's finding that it failed to prove that Respondent did not comply with the provisions of its policies and procedures which required it to contact the pharmacy whenever an order was held by the SOMS and obtain an explanation for the order, which it then independently verified, as well as to obtain a new UR. Gov. Exceptions, at 43-56. As for Respondent, it asserts that “the ALJ assumed that

all

orders identified on the SOMS notes were held by SOMS,” and that “[a]s a result of this misinterpretation, the ALJ vastly overstated the number of orders held by the SOMS.” Resp. Exceptions, at 13. Respondent also argues that “the ALJ incorrectly concluded that the . . . Order to Show Cause was not based on `Covered Conduct' ” and that she “failed to make factual findings required to protect [its] interests under the” MOA.

Id.

at 16. Respondent further asserts that the “ALJ should not have allowed evidence regarding [its] failure to review [the utilization reports] regardless of whether it was part of [its] policies and procedures.”

Id.

at 19.

Having reviewed the entire record, I limit my discussion of the pharmacy specific evidence to the Florida pharmacies.

The Government's Exception

As noted above, Respondent's Policies and Procedures required that an order placed on compliance hold by the Suspicious Order Monitoring System (SOMS) be subject to additional due diligence which included: (1) contacting the customer to discern the reason for the deviation in size, pattern, or frequency; (2) independently verifying the reason stated by the customer; (3) obtaining a new utilization report; and (4) conducting a complete file review to determine if the pharmacy's order was consistent with legitimate business practices. As will be shown below, while the SOMS held numerous orders placed by the Florida pharmacies, in only rare instances do Respondent's records document that it contacted the pharmacy to obtain an explanation for the order, let alone that it independently verified that explanation.

While Policy 6.2 required Respondent to obtain a new UR whenever an order was held by the SOMS, it is beyond dispute that Respondent rarely obtained a new UR.

The Government points to the frequent absence of documentation showing that Respondent contacted the pharmacies, obtained an explanation for these orders, and independently verified that explanation. The Government contends that the reason there is no such documentation is because Respondent's employees did not do it.

The ALJ rejected the Government's contention, asserting that the Government acknowledged in its brief that Respondent's “Policies and Procedures do not require documentation of the reasons for the release of a held order.” R.D. at 171. I need not decide whether this is a fair reading of the Government's brief because, as found above, the ALJ ignored the evidence that Respondent, in its presentation to the Agency regarding “The Process” for monitoring controlled substance orders, represented that “[d]ocumentation on all orders held for review and their dispositions are permanently retained.” RX 12, at 30 (emphasis in original).

Moreover, while the ALJ acknowledged Mr. Corona's testimony that documentation was the “ `lynchpin [sic] of the whole system in terms of explaining our behavior,' ” the ALJ then characterized his testimony as “not[ing] that the reasons for exceeding SOMS would

often

be documented in [the] MFRs and Ship to Memos.” R.D. at 171 (citing Tr. 1094; GX 51B at 6 ¶ 19) (emphasis added). Yet Mr. Corona actually testified that “[t]he compliance department would contact the customer, advise that the order was held and request a reason why the order exceeded SOMS parameters. The reason

would be documented in the due diligence files, specifically in the `Memo for Record' (MFRs).

It may also have been electronically documented in the `Ship to Memos' which were also part of the due diligence file.” GX 51B, at 6 ¶ 19 (emphasis added). While the ALJ also cited Mr. Corona's oral testimony as support for her characterization of his testimony that the reasons “would often be documented,” I reject this because it is based on a misreading of Mr. Corona's testimony.

The actual question (by Respondent's counsel), which was based on a hypothetical, as it is not supported by any facts in evidence and is not even probative on this point, and Corona's answer follows:

Q. Now, if Jennifer Seiple made that phone call and the pharmacist said I ordered a day early because I'm going on vacation next week and she didn't document that on an MFR, you would trust her to know that that was an appropriate reason? I mean, if she didn't document it, that doesn't indicate to you that she was attempting to do anything nefarious, does it?

A. No, it does not. What I would do is ask her under the assumption that she was well within her guidelines to do that and then ask her to please document it for future reference or go back and document it because documentation was the linchpin of this whole system in terms of explaining our behavior, especially in our environment.

Tr. 1094.

The ALJ also asserted that another witness (Mr. Schulze), who had worked in the Compliance Department, “testified that not all research the Compliance Department conducted was documented in the MFRs or Ship to Memos, and that he did not feel that leaving some research out of the due diligence files violated Respondent's Police and Procedures.” R.D. at 172-73. However, the thrust of Mr. Schulze's testimony was that the Compliance Department would not necessarily document in the MFRs or the SOMS notes having performed Google searches or having obtained a fax from the customer; instead, it would simply place the information in the customer's due diligence file. Tr. 1337-39. Thus, this testimony simply does not address the issue.

While Mr. Schulze also testified that he would “not necessarily” document “every single time” he made a phone call to a customer, this was in response to Respondent's counsel's suggestion that it was “[o]ften very difficult to get in touch with pharmacists” because they are “very busy people” and “don't sit at the end of the phone and take calls from [Respondent's] compliance department all the time.”

Id.

at 1335-36.

Most significantly, Respondent's counsel then asked Mr. Schulze if “[i]t was your understanding that when compliance had significant or important information or contact with a customer, that type of information should be documented in the compliance file in either the MFRs, or the SOMS notes, or the ship to notes, or somewhere, correct?”

Id.

at 1336-37. Mr. Schulze answered: “Yes.”

Id.

Nor did Ms. Seiple, who headed the Compliance Department, assert that its employees actually contacted the pharmacies whenever the SOMS held orders but simply failed to document doing so.

See

RX 103.

In addition to her failure to acknowledge Respondent's representation to the Agency that “[d]ocumentation on all orders held for review and their disposition are permanently retained,” RX 12, at 30; the ALJ also failed to acknowledge both the representations made by Respondent in the SOMS Appendix and what the SOMS notes actually showed. As found above, the SOMS Appendix states that: “[t]he ultimate status, accept or reject, will be shown along with the date/time and user associated with the action.

A Reason code and notes will also be provided as additional detail supporting the decision.”

RX 78, at 64 (emphasis added). Thus, I respectfully reject the ALJ's premise that Respondent's Policies and Procedures did not require it to document the inquiries it made of the pharmacies in the course of reviewing those orders that were held by the SOMS.

Moreover, as will be explained in the findings made with respect to each pharmacy, the SOMS notes did typically contain an explanation regarding the review of those orders that were held by the SOMS. However, that explanation invariably did not reflect that Respondent had contacted the pharmacy and obtained an explanation for why the order had exceeded the SOMS parameters, but rather, some other explanation, such as that the order was released because it was supported by the pharmacy's utilization report (which the evidence will show was infrequently obtained). This begs the question, which the ALJ did not answer: why, if the Compliance Department had actually contacted the pharmacy and obtained a legitimate explanation for why the order exceeded the SOMS parameters, it then documented a reason for releasing the order which had nothing to do with anything the pharmacy may have told it?

As for the ALJ's reliance on the fact that such documentation is not required by DEA regulations or any established industry standard, this is beside the point given that Respondent represented to the Agency that it would maintain such documentation. Moreover, there is ample authority to support the Government's position that the absence of such documentation proves that the pharmacies were not contacted.

As a leading authority explains: “The

absence of an entry,

where an entry would naturally have been made if a transaction had occurred, should ordinarily be equivalent to an assertion that no such transaction occurred, and therefore should be admissible in evidence for that purpose.” V Wigmore, Evidence § 1531, at 463 (Chadbourn rev. 1974) (citing cases);

see also

GX 15, at 111 (SOMS Notes of 10/27/09: “Ok to ship . . . oxy @ limit 25k with this order” and Jan. 29, 2010—“ok to ship, under the CSL of 25k”). However, in November 2009, Respondent filled orders totaling 26,200 du of oxycodone products, which included 1,200 du of oxycodone 80; 9,600 du of oxycodone 30; 14,400 du of oxycodone 15; and 1,000 du of oxycodone 10/325. GX 10F, at 1-2. All but 3,600 du were ordered on the last day of the month.

Id.

at 1-2. While these orders placed Tru-Valu over the 25,000 CSL, the SOMS notes do not contain the name of a reviewer or an explanation for why the orders were shipped. GX 15, at 111.

The actual oxycodone orders placed by Tru-Valu (as opposed to the amount shipped) are not in the record. However, various entries in the Memo for Records and SOMS notes include notations as to the size of various orders.

In February 2010, Tru-Valu again submitted orders in excess of the 25,000 du threshold. According to Respondent's records, Mr. Schulze, a compliance clerk, called Tru-Valu and spoke with its pharmacist-in-charge about the oxycodone order. RX 2A, at 9. The pharmacist in charge reported that an Albertson's (a supermarket) had “closed by him” and that he was “getting some of [its] business.”

Id.

However, even though Respondent's Policy 6.2 required that the pharmacist's explanation then be independently verified, there is no documentation to support that this was done. Moreover, while the SOMS note for this order states: “Ship with reservation UR supports Oxy order reviewed by JEN,” GX 15, at 111; Respondent did not obtain a new UR for “the most recent calendar month” as required by its Policy 6.2, and had last obtained a UR in October 2009. Notwithstanding its failure to comply with its policy, during February 2010, Respondent shipped Tru-Valu 39,600 dosage units of oxycodone 30 mg and 7,200 dosage units of oxycodone 15 mg for a total of 46,800 du. GX 10F, at 1-2. Although the orders exceeded the CSL by nearly 22,000 du, Respondent did not report any of the orders as suspicious.

Even assuming that this figure became the new CSL for Tru-Valu's oxycodone orders (notwithstanding Respondent's failure to verify the legitimacy of the order), in March 2010, Tru-Valu again ordered in excess of the CSL. According to an entry dated March 15, 2010 in the Memo for Records, compliance “requested UR for file to support this. Need site visit. RWR [release with reservation] until site visit completed.” RX 2A, at 9. The Memo for Records includes a further note on this date stating: “Increase in Business Due to Albertson's Closing.”

Id.

However, while a UR was obtained for the month of February 2010, it was not obtained until April 1, 2010.

Id.; see also id.

at 47. Once again, there is no evidence that Respondent independently verified that the Albertson's had closed.

See generally

RX 2A. Respondent nonetheless shipped to Tru-Valu 43,200 du of oxycodone 30 and 12,000 du of oxycodone 15 for a total of 55,200 du. GX 10F, at 1-2.

An MFR entry dated March 31, 2010, states: “Called to mention Oxy 15 need to be deleted. Pharmacy closed.” RX 2A, at 9. While there is no evidence establishing the size of the oxycodone 15 order, as explained above, even assuming that the CSL had been raised to 46,800 as a result of Tru-Valu's February orders, its March orders again exceeded the CSL. Yet, here again, Respondent failed to comply with its policy by verifying the reason for the increase in the orders. Moreover, this order was not reported as suspicious.

In April 2010, Tru-Valu did not place any orders until April 27, when it ordered a total of 36,000 oxycodone 30 and 12,000 oxycodone 15. GX 15, at 112; GX 10F, at 1-2. While the orders were held for review by the SOMS (either because of frequency or pattern), because the orders were under the previous month's total of 55,200, Respondent did not deem the order to be excessive and filled the orders. GX 15, at 112 (SOMS notes). Respondent did not, however, contact the pharmacy and obtain an explanation for the order, which it independently verified.

On May 10, Tru-Valu ordered 12,000 du of oxycodone 30. GX 10F, at 1. A notation in the SOMS Notes states: “Ok to ship first monthly purchase of Oxy leaves 13k.” GX 15, at 112. Additional SOMS notes dated May 13 and 14 indicate that Tru-Valu placed additional orders on these dates and a notation made on the latter date states: “RWR do nto [sic] ship over 25k without review by committee see mas and mfr.”

Id.

As for the MFR, it contains a handwritten note (of marginal legibility) dated May 14, which states “increase on oxy—why orders increasing” and that Tru-Valu's pharmacist had stated that H.D. Smith (another distributor) had “cut back 60-70k” and from “40 bottles to 8 bottles” a day, as well as a note that “Started to cut back in March/Feb?” RX 2A, at 7. The MFR note then states that Tru-Valu had “purchased 120 bottles on 5-10-10” and that there was a “change in buy[ing] patterns due to HD Smith dropping allocation.”

Id.

The entry continues with the following notation: “RWR 120 bottles of oxy under CSL of 25 k. Don't ship over 25 k w/out rev @ 61k rolling 30 high due to pattern change due to allocation decreasing from wholesaler.”

Id.

However, here again, while the SOMS had placed the order on compliance hold, there is no evidence that Respondent's compliance department independently verified Tru-Valu's claim that H.D. Smith had reduced its allocation to the pharmacy. Nor did Respondent obtain a new UR. Moreover, three days later (May 17), Respondent filled an additional order and shipped 12,000 du of oxycodone 30 to Tru-Valu. GX 10F.

On May 18, Tru-Valu apparently placed a further order. GX 15, at 112. According to the Memo for Records, the order was “deleted due to past 30 days @73k.” RX 2A, at 7. Continuing, the entry states: “Can place order after 5-27-10 Committee Rev.”

Id.

However,

while the order again placed Tru-Valu well over its CSL, the order was not reported to DEA as suspicious.

According to the SOMS Appendix, “[t]o determine if an order . . . is invalid for size, the system calculates the total number of doses invoiced in the past 30 days plus the total doses on open orders plus the number of doses on the received order and compares it to the monthly limit.” RX 78, at 60. While this suggests that quantities that were edited downwards or deleted from an order were not counted in evaluating a new order, it also suggests that the entire quantity of a new order was to be considered in determining whether a new order exceeded the CSL.

On May 27, Tru-Valu placed additional orders for both oxycodone 30 and 15. GX 10F, at 1-2. According to the Memo for Records, Tru-Valu requested 12,000 du of oxycodone 15 in addition to 24,000 du of oxycodone 30. RX 2A, at 7. The Memo for Record further includes an illegible word (or two) followed by the words “allotment 55,200—Current size in Soms is @24 k/can get 31,200 for current period.”

Id.

Further notations on the same day indicate that Respondent talked to the pharmacist and that he requested that 72 bottles (of 100 du each) “be sent from the Oxy 15's of 120.0 requested,”

id.,

and other evidence shows that Respondent shipped 24,000 du of oxycodone 30 and 7,200 du of oxycodone 15 to Tru-Valu on this date. GX 10F, at 1-2.

Thus, during May, Respondent had shipped 65,200 du of oxycodone to Tru-Valu; it had also deleted the May 18 order, the size of which is unknown, and edited 4,800 du off the May 27 order. Yet even though the orders clearly exceeded the CSL and Respondent had never verified Tru-Valu's explanation, it did not report the orders as suspicious.

A note in the Memo for Records dated June 2, 2010, states that “this account to be reviewed @25 Do not ship over 25 w/out committee review. . . . order on 5-27 was released w/out review by committee/management this was a mistake the account can not [sic] receive any more.”

Id.

The Memo for Records includes a notation that the committee conducted its review the next day and determined that “25k is place for review.”

Id.

The notes also indicate that Tru-Valu was contacted and told that “the account has received over allotment mistake both months” followed by illegible writing.

Id.

Notwithstanding the above entry, Respondent shipped 12,000 du of oxycodone 30 and 9600 du of oxycodone 15 to Tru-Valu on June 9, followed by an additional 12,000 du of oxycodone 30 on June 15, for a total of 33,600 du. GX 10F, at 1-2. The SOMS notes for both orders include notations to the effect: “release with reservation per committee.” GX 15, at 112. Here again, while the orders exceeded the CSL as determined by the committee, there is no evidence that Tru-Valu was contacted after it placed the June 15 order for 12,000 oxycodone 30. Nor did Respondent obtain a new UR. And Respondent did not report the orders as suspicious.

According to an email train, on June 21, Tru-Valu placed an additional order for 120 bottles of oxycodone 30. RX 95, at 2. Here again, this order placed Tru-Valu's orders over its oxycodone CSL. While the order was cancelled, apparently at the request of the PIC because insurance paid less than Respondent's price,

id.

at 1-2, it was not reported as suspicious even though it placed Tru-Valu's orders over its CSL.

Still later that month, the Memo for Records includes a note for June 30, with the entry: “order deleted placed too early[.] See SOMs review of last 30 days.” RX 2A, at 2. Here again, even assuming that Respondent contacted Tru-Valu regarding this order before deleting it, there is no documentation as to what the pharmacist may have told Respondent as to why he placed the order, and a new UR was not obtained.

Tru-Valu apparently resubmitted the order the following day (July 1), as Respondent shipped to it 13,200 du of oxycodone 30. GX 10F, at 1. After noting “RWR” (release with reservation), the SOMS note states: “order for 132.0 bottles from 288 per may-30 on the pattern high of 46,800 rest of order can be resubmitted for review after 7/15/10.” GX 15, at 112. However, on shipping the 132 bottles, Respondent had shipped 46,800 du of oxycodone on a rolling 30-day basis and Tru-Valu's orders totaled 62,400 du. Even assuming that the CSL was raised to 33,600 du from the 25,000 du level (discussed in the notes for the June 3rd committee review) based on Tru-Valu's June orders, there is no documentation that Respondent contacted Tru-Valu to obtain an explanation for the increase in its orders or that it verified Tru-Valu's previous assertion that H.D. Smith had reduced its allocation. Nor did it obtain a new UR. And it did not report the orders as suspicious.

On July 15, 2010, Tru-Valu apparently resubmitted the rest of its order as Respondent shipped 20,400 du of oxycodone 30 to it. GX 10F, at 1. The corresponding note states: “ok to ship a total of 204 Oxy,

order was edited from 336 to 204 to meet csl of 33600.” GX 15, at 112. Moreover, a note in the Memo for Records for this date states: “Oxy CSL is @ 33,600 do not go over this amount w/o review.” RX 2A, at 2.

This is a reference to 100 du bottles.

Even assuming that Tru-Valu's oxycodone CSL had been raised to 33,600 du (and excluding the deleted June 30 order and the amount deleted from the July 1 order), Tru-Valu's July 2010 orders still totaled 46,800 du and thus exceeded the CSL. Yet Respondent again failed to obtain an explanation from Tru-Valu for why it was ordering the quantities that it was, and obviously, having failed to obtain an explanation, there was nothing to independently verify. Nor did Respondent obtain a new UR. And it failed to report the order as suspicious.

On August 2, Tru-Valu ordered and Respondent shipped to it 25,200 du of oxycodone 30 and 1,200 du of oxycodone 15. GX 10F. The same day, Respondent obtained a UR for the month of July, and on August 6, its inspector conducted a site visit. RX 2A, at 2.

According to the site visit report, Tru-Valu was a retail community pharmacy filling 200 prescriptions per day, of which 60 to 80 percent were controlled substances and “60% of total” were schedule II drugs. RX 2A, at 12, 18. Tru-Valu reported that H.D. Smith was its primary wholesaler and that Amerisource and Respondent were its secondary wholesalers.

Id.

at 18. While Respondent's inspector noted that Tru-Valu appeared to have “a full selection of pharmaceuticals” and an “extensive selection of front store merchandise,” he also wrote that the pharmacy was “very busy” with a “long line of mostly younger people” who were “thin, tattooed, casually dressed,” and that there were “10 people” and “more coming in.”

Id.

at 19. The inspector noted the time of his report as 2:44 p.m.

Id.

The inspector further documented that the pharmacy had posted signs stating “No insurance for: Oxycontin, oxy solution, [and] oxycodone by Mallinckrodt, Actavis.”

Id.

at 20. The pharmacist on duty had only worked at Tru-Valu for two months and did not know why the signs were posted.

Id.

According to an MFR note, several weeks later, a member of Respondent's compliance department spoke with Tru-Valu's PIC, who stated that insurance did not reimburse at “high enough” rate “to make up for the expense.”

Id.; see also

RX 2A, at 2. The inspector also observed signs stating that there was a “pill limit” of 180 du on oxycodone 30 and 90 du on oxycodone 15, as well as a sign stating: “must have recent MRI report.”

Id.

However, in contrast to the questions about whether Tru-Valu accepted insurance on oxycodone

prescriptions, there is no evidence that Respondent asked about the pill-limit signs or the MRI requirement.

A note in the margin next to the August 2 MFR entry, which is dated August 16, states that an order, the size of which is unclear, was deleted “per review until [the] review completed.” RX 2A, at 2. However, the order was not reported as suspicious.

While no additional oxycodone orders were filled during August, on September 1, Respondent shipped to Tru-Valu 24,000 du of oxycodone 30 and 2,400 du of oxycodone 15. GX 10F. An MFR note of the same date states: “under compliance for [illegible] of site visit.” RX 2A, at 2. A second entry of the same date memorializes a discussion with Tru-Valu's PIC regarding why he did not accept insurance on oxycodone with the further notation of “RWR Orders pending.”

Id.

However, there is no evidence that Respondent questioned Tru-Valu's PIC about the other observations recorded by its inspector, including the signs imposing pill limits on oxycodone and requiring that the patients have a recent MRI, or the long line of mostly younger people who were apparently filling their prescriptions and doing so in the middle of the afternoon.

On September 21, Respondent shipped 7,200 du of oxycodone 30 mg. GX 10F, at 1. The SOMS note for this dates states: “oxy edited for csl on product.” GX 15, at 113. Likewise, the MFR notes include the notation “RWR” and the statements: “order edited from 264—72 per SOMS” and “Do not release any more product [illegible] reservations addressed.” RX 2A, at 2. Here again, Tru-Valu's orders had totaled 52,800 du and exceeded the CSL, yet Respondent did not contact the pharmacy to obtain an explanation for the order and a new UR. Nor did it report the order as suspicious.

The next day, Respondent shipped an additional 13,200 du of oxycodone 30 to Tru-Valu. GX 10F. According to the MFR notes, on this day, Respondent contacted Tru-Valu's PIC to discuss the edit of his order and asked him if he got a lot of out-of-state customers. RX 2A, at 2. According to the notes, the PIC said: “not any more since we stopped filling out of state scripts about a year ago.”

Id.

Tru-Valu's PIC stated that he “runs out of product” and “only fills for regulars,” followed by the words “in state customers w/Florida ID” which is in clearly different handwriting.

Id.

Respondent did not, however, obtain an explanation as to why Tru-Valu was running out of oxycodone product.

It is noted that the words “a couple” are written in the date column immediately preceding the words “a year ago” in the notes area of the MFR form, suggesting that these words were inserted after the initials of Mr. Corona and the words “No Servicing Out of State.” RX2A, at 2.

Additional notes for this date indicate that an account review was conducted, during which the compliance committee and Wayne Corona reviewed the site visit, the UR, and information about Tru-Valu's Web site.

Id.

at 3. The MFR notes indicate that Corona directed that Tru-Valu be approved to increase its oxycodone purchases up “to the pattern high of 46800 over the last 12 months.”

Id.

at 2. Additional notes cryptically state: “to pattern high of 46,800 less than 70% of UR

on fill with current allotment from Masters taken into consideration 46,800 42% of UR.”

Id.

at 3. Respondent then approved the shipment of an additional 13,200 du of oxycodone 30 to Tru-Valu.

See id.

at 2-3; GX 10F, at 1.

There is no evidence that Tru-Valu was using its Web site to distribute controlled substances.

A note on the previous page states: “within parameters 70%.” RX 2A, at 2.

Apparently, because Respondent had edited 19,200 du off the order Tru-Valu had placed the day before, the new order did not place Tru-Valu's orders over the new CSL of 46,800 du. Tru-Valu's file offers no explanation for why Corona disregarded the information as to the highly suspicious circumstances documented in the recent site visit report and the most recent UR. As for the latter, it showed that 18 of the top 20 drugs being dispensed were controlled substances, including 11 oxycodone products, three alprazolam products, two diazepam products, methadone, and dilaudid. Moreover, Tru-Valu's dispensings of oxycodone 30 mg products alone totaled 206,132 du and its dispensings of oxycodone 15 totaled 32,441 du. RX 2A, at 29-34. Thus, out of its total dispensings of 337,314 du, Tru-Valu's dispensings of oxycodone 30 alone comprised 61 percent of its dispensings of all prescription products, and its dispensings of both the 30 and 15 milligram dosages (which totaled 238,603 du) comprised nearly 71 percent of its total dispensings.

On October 1, 5, and 13, Respondent filled orders for oxycodone 30 in the amounts of 24,000 du, 14,400 du, and 6,000 du respectively; on October 1, it also filled an order for 2,400 du of oxycodone 15. GX 10F, at 2. Upon filling the October 5 order, Respondent had shipped 58,800 du on a rolling 30-day basis, thus exceeding the CSL of 46,800 du. Yet the only notation in the SOMS notes is “RWR.” GX 15, at 113. The order was not reported as suspicious.

A SOMS note of October 13, 2010 for an order placed the previous day states: “order reviewed edited to 60 bottles to keep mfr csl of 46800.”

Id.

Yet on filling the October 13 order, Respondent had actually shipped 64,800 du on a rolling 30-day basis. Here again, while Tru-Valu's filled orders exceeded the CSL by 18,000 du, there is no evidence that Respondent contacted Tru-Valu's PIC and asked why he was ordering in excess of this amount.

The records show that several weeks later, Respondent contacted Tru-Valu's PIC in response to his having placed orders for morphine and methadone for the “first time . . . since 2009.” RX 2A, at 1. The PIC stated that he ordered the drugs from Respondent because it had cheaper prices and Respondent obtained a new UR for the month of September 2010.

Id.

No explanation was offered as to why similar inquiries were not documented following the October 12 oxycodone order that took Tru-Valu over its limit.

On November 1, 2010, Tru-Valu placed orders, which Respondent filled, for 24,000 du of oxycodone 30 and 2,400 du oxycodone 15. GX 10F, at 2. Thereafter, on November 8, Tru-Valu placed additional orders, which Respondent filled, for 14,400 du of oxycodone 30.

Id.

A note dated November 9 states: “CH Review Business Model Re-Review” followed by the initials of JS. RX 2A, at 1. Notes dated November 10 state that the account was “placed in non-control status permanently” and that the “account has been monitored closely on and off [compliance hold] monitoring business model” and that “the account was reviewed by” the compliance committee, apparently after Respondent received a letter from Mallinckrodt (a manufacturer) raising “concerns on the account.”

Id.

An entry for the following day states that Tru-Valu was getting “rebates” from a “buying group” and that Ms. Seiple told the PIC that it was on non-controlled status.

Id; see also

GX 15, at 109.

There is no evidence that Respondent filled any more controlled substances thereafter. However, none of Tru-Valu's orders were ever reported as suspicious.

In her declaration, Ms. Seiple asserted that Tru-Valu's PIC explained that its “business model included active marketing to various nearby pain clinics,” and that he “provided the names and DEA . . . numbers of the doctors writing prescriptions for patients of those clinics.” RX 103, at 39. She then offered the conclusory assertion that “[t]hese marketing efforts accounted for the volume of pain medications being dispensed, and the percentage of oxycodone dispensed relative to other drugs.”

Id.

Ms. Seiple further asserted that “[a]fter Tru-Valu's account was approved, [Respondent's] SOMS system identified and held any order for controlled substances placed by Tru-Valu that deviated from its typical volume, pattern or frequency. All such orders were released only after review by [Respondent's] Compliance Department” and that “[o]n some occasions, the Compliance Department would request Tru-Valu to provide a UR as part of its review of orders that had been held.”

Id.

Ms. Seiple's statement is misleading because the SOMS was not even in operation until August 2009.

Ms. Seiple further asserted that “[a]s a result of our ongoing due diligence, [Respondent] was aware of the volume of oxycodone and other controlled drugs being dispensed by Tru-Valu, and the percentage of controlled drugs dispensed relative to other drugs. [Respondent] specifically investigated the reason why Tru-Valu's ordering and dispensings patterns were as indicated on the UR's.”

Id.

at 40. She then asserted that “[t]he UR's and other information provided by Tru-Valu were consistent with the pharmacy's business model as explained by [its PIC] and confirmed in the May 2008 site inspection. Tru-Valu appeared to be a full line pharmacy that was dispensing a large of variety of both controlled and non-controlled drugs, and that serviced the patients of several nearby pain management physicians.”

Id.

However, Tru-Valu had provided the names of only five pain management physicians. Moreover, while it dispensed a variety of non-controlled drugs, Ms. Seiple did not refute the DI's contention that “oxycodone 30 [was] being dispensed in significantly larger volume than any other drug; [that] the majority of the top 20 drugs dispensed are controlled substances; [and that there was] an absence of more commonly dispensed drugs by a retail pharmacy.” GX 49B, at 20-21.

Ms. Seiple further asserted that “[b]ased on [Respondent's] extensive investigation, it determined that the orders it shipped to Tru-Valu were not suspicious.” RX 103, at 41. Yet, as found above, Respondent repeatedly failed to comply with its policies and procedures when reviewing those orders that were held.

Finally, Ms. Seiple declared that she was concerned that during the August 6, 2010 site visit, Respondent's inspector had observed a sign stating that Tru-Valu did not accept insurance for oxycodone products manufactured by Mallinckrodt or Actavis.

Id.

Ms. Seiple stated that the PIC explained that because he “had received insurance cards” from some patients who actually did not “have current valid insurance coverage” and “was concerned that if [he] submitted invalid claims, it would jeopardize [his] relationship with insurers.”

Id.

According to Ms. Seiple, the PIC stated that “he placed the sign to try and limit the number of new patients who attempted to use insurance” for oxycodone but that he did accept insurance for oxycodone from those patients he knew had valid insurance.

Id.

Yet this story was inconsistent with the PIC's previous explanation that the reason for the sign was that insurance did not pay enough. And even if the PIC's subsequent explanation was true, Ms. Seiple did not address why she did not find it concerning that the inspector had reported that the pharmacy had also posted signs stating that there was a pill limit of 180 du of oxycodone 30 (and 90 du of oxycodone 15) and that the patients “must have a recent MRI report.” Nor did Ms. Seiple address why she did not find it concerning that the inspector found the pharmacy was “very busy” with “a long line of mostly younger people” who were “thin, tattooed, [and] casually dressed.” Notably, even after the concerns raised during this site visit, Respondent continued filling Tru-Valu's orders for another three months and did not report a single order to DEA as suspicious.

The Drug Shoppe

According to Respondent's due diligence file, The Drug Shoppe is a retail or community pharmacy located in Tampa, Florida. RX 2B, at 27, 126. While it is unclear when The Drug Shoppe first began purchasing controlled substances from Respondent, the due diligence file includes a Dunn and Bradstreet Report dated March 28, 2008, along with printouts of the same date showing that Respondent verified that it had a valid Florida pharmacy license and DEA registration, and that its PIC had a valid pharmacist's license.

Id.

at 121-39.

The file also includes a Schedule Drug Limit Increase Request Form dated March 28, 2008 and a Due Diligence Report Form dated Mar 31, 2008.

Id.

at 120, 126-27. The Drug Limit Increase form shows that The Drug Shoppe was seeking an increase in solid dose oxycodone and noted that its monthly usage in February and March was “323-192.”

Id.

at 120. The form also includes the notation: “CSOS Report Over Limit.”

Id.

While the form includes a section in which the account manager could check various exemptions that a customer could qualify for, such as its having been a long-term customer (

i.e.,

more than one year), none of the exemptions was checked.

Id.

The Due Diligence Report noted that The Drug Shoppe had a daily script average of 150, that 40 percent of the prescriptions were for controlled substances, that 20 percent of the prescriptions were for schedule II drugs, and that 70 percent of the prescriptions were paid by insurance.

Id.

at 126. The Report also stated that The Drug Shoppe prevented doctor shopping by verifying prescriptions and that its PIC knew “most of his patients,” that its PIC knew the doctors and that “most are anesthesiologists,” and that it was located “next to [sic] hospital.”

Id.

According to the form, the PIC had refused to fill a prescription for several reasons, including that a prescription was for “too high Qtys.”

Id.

at 127.

The Drug Shoppe's PIC also stated that he did not fill if a refill was “too early,” if he did not know the doctor and could not get hold of the doctor, and if a patient “ha[d] been to too many docs.” RX 2B, at 127. He also represented that he checked the doctor's license, and if a doctor was “more than 20 miles away [he] will visit, call or not fill.”

Id.

On April 15, 2008, the Account Manager completed a second Drug Limit Increase Request, again indicating that The Drug Shoppe was seeking an increase in solid dose oxycodone, solid dose hydrocodone, and alprazolam.

Id.

at 119. A note on this form indicates that Respondent had “already received” a UR for “all items . . . they fill.”

Id.

The UR, which covered the month of February 2008, showed that The Drug Shoppe dispensed 181 prescriptions totaling 38,689 du of oxycodone 30, for an average quantity of 214 du per prescription.

Id.

at 214-15. It also showed that the pharmacy had dispensed 43 prescriptions totaling 8,239 du of oxycodone 15, for an average quantity of 192 du per prescription. The Drug Shoppe dispensed more than 56,600 du of oxycodone products (including Endocet) out of its dispensings of all prescription products, which totaled 165,068 du.

Id.

at 209, 214-15, 218.

This total includes a 240 du prescription for Roxicodone 30 mg, a branded drug. RX 2B, at 215.

The next day, Matt Harmon sent an email to The Drug Shoppe informing it that Respondent had reviewed its account and was increasing its “purchase limit of Oxycodone solid dose products to 25,000 doses (pills) per calendar month.”

Id.

at 219. While Respondent held off on The Drug Shoppe's requests to increase its hydrocodone and alprazolam purchases, it approved the oxycodone increase before it had even inspected the pharmacy.

On April 28, 2008, Respondent's consultant conducted a site visit and determined that the pharmacy was a compounding pharmacy.

Id.

at 27. While the pharmacy reported that it did not engage in internet business, it acknowledged filling prescriptions for five pain management doctors, whose names were listed on the evaluation form; however, there is no evidence that Respondent verified that these physicians were properly licensed and registered, let alone whether they held any specialty training or board certification in pain management.

Id.

at 27-30.

According to the report, the pharmacy did not service nursing homes, hospice programs, or inpatient facilities.

Id.

at 29. The pharmacy reported that it filled 100 prescriptions per day, of which 50 percent were for controlled substances, and that cash and insurance each comprised 50 percent of the payments it received.

Id.

Respondent's consultant reported that The Drug Shoppe “appears to be a very professionally run pharmacy,” which took “exceptional care in secure storage of [its] controlled substances inventory.”

Id.

at 30. The consultant further noted the PIC's complaint that he was “finding it hard to fill some of the prescriptions presented because of the limitation placed on the quantities he can purchase.”

Id.

at 30-31. The consultant also obtained a copy of the pharmacy's most recent state inspection report, which showed no violations.

Id.

at 32.

On or about August 14, 2008, Respondent approved an increase in The Drug Shoppe's oxycodone purchasing limit from 25,000 to 50,000 du.

Id.

at 115. Notes on a form entitled “Limit Increase Request Conclusion” state: “Previously raised to 25k. Clean license. Satisfactory visit by L. Fisher,” who was Respondent's consultant.

Id.

The document also indicates that Respondent set The Drug Shoppe's purchasing limit for hydrocodone and alprazolam at 25,000 du for each drug. RX 2B, at 115.

In April 2009, Respondent shipped to The Drug Shoppe 43,000 du of oxycodone 30; 10,800 oxycodone 15; 600 du of Endocet 10/650; 600 du of oxycodone/apap 10/325; and 200 du of oxycodone/apap 5/325, for a total of 55,200 du. GX 10F, at 29-33. Notwithstanding that The Drug Shoppe's purchasing limit was still set at 50,000 du for all oxycodone products, Respondent's records contain no documentation as to why it was allowed to exceed its purchasing limit.

While in both May and June 2009, Respondent's shipments of oxycodone to The Drug Shoppe did not exceed the 50,000 du purchasing limit, in July it shipped 60,000 du of oxycodone 30; 1,000 du of Endocet 10; and 1,000 du of Endocet 5 for a total of 62,000 du.

See id.

The Drug Shoppe's due diligence file contains no explanation for why it was allowed to exceed the purported purchasing limit.

On or about July 14, 2009, Respondent obtained a new UR from The Drug Shoppe, which covered the period of May 14 through July 14, 2009.

Id.

at 148-204. Oxycodone 30 mg was the number one drug dispensed.

Id.

at 148. Indeed, the UR showed that The Drug Shoppe had dispensed 595 prescriptions of oxycodone 30 totaling 105,570 du, for an average of 52,785 du per month and an average prescription size of 177 du.

Id.

at 148 & 161. While The Drug Shoppe dispensed only 54 oxycodone 15 prescriptions totaling 9,360 du (an average of 4,680 per month), the average prescription size was 173 du.

Id.

at 149-50. Including all formulations of oxycodone, Respondent dispensed more than 136,400 du or 68,200 du per month.

As for other formulations, the UR showed that The Drug Shoppe dispensed 2,843 du of OxyContin 80; 600 du of OxyContin 60; 3,394 du of OxyContin 40; and 480 du of OxyContin 20. RX 2B, at 148-205. It also dispensed 8,886 du of oxycodone/acetaminophen (apap) 10/325; 2,320 du of oxycodone/apap 10/650; 2,031 du of oxycodone/apap 5/325; and 950 du of oxycodone 5 mg.

Id.

A Ship to Memo note dated July 28, 2009 states: “increase accepted from 50k to 62k on oxy.” GX 16, at 221. There is, however, no further documentation explaining the justification for the increase. During the month of July 2009, Respondent shipped 60,000 du of oxycodone 30 as well as 2,000 du of combination oxycodone products to The Drug Shoppe. GX 10F, at 29, 31-33.

During August 2009, Respondent shipped to The Drug Shoppe a total of 60,500 du of oxycodone 30, as well as 1,000 du of Endocet 10/325 and 500 du of oxycodone/apap 5 mg.

See id.

However, while the total monthly shipments did not exceed the recently approved 62,000 du limit, the SOMS had gone into effect on August 1 and on several occasions during the month, The Drug Shoppe's orders exceeded the CSL on a rolling 30-day basis.

For example, on August 13, Respondent filled an order for 1,000 du of Endocet 10/325, thus placing The Drug Shoppe's total of filled orders at 62,500 du on a rolling 30-day basis.

Although the SOMS was supposed to place an order on hold even if it exceeded the CSL by a single dosage unit and thus trigger the requirements that the Compliance Department obtain an explanation for the order, which was independently verified, as well as that it obtain a new UR, the only notation in Respondent's file states: “ok to ship within current limit.” GX 16, at 234.

The total includes orders for oxycodone 30 in the following amounts and on the following dates: 8,000 du on July 16; 12,000 du on July 28; 20,000 du on Aug. 3; 20,000 du on Aug. 7; 1,000 du on Aug. 10; it also includes orders for 500 du of Endocet 5 on Aug. 6; and 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.

An entry dated August 20, 2009 in the Memo for Records notes: “order deleted over current limit compliance review[.] Hold for review.” RX 2B, at 4. A subsequent entry for the same day states: “Requested Review of Disc Docs and File.”

Id.

The next day, Respondent shipped 19,500 du of oxycodone 30 to the Drug Shoppe. GX 10F, at 29. Of note, on a rolling 30-day basis, The Drug Shoppe's orders totaled 74,000 du of oxycodone, with 72,500 du being for 30 mg tablets.

The total includes orders for oxycodone 30 in the following amounts: 12,000 du on July 28; 20,000 du on Aug. 3; 20,000 du on Aug. 7; 1,000 du on Aug. 10; 19,500 on Aug. 21; it also includes orders for 500 du of Endocet 5 on August 6 and 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.

An MFR entry of the same date states: “Request Update Survey,” “U/R Looks Strong + Voluminous,” “OK TO 62,000—oxy family,” “HIV,” “Large # RX's For HIV Disease State,” “Methadone Ok'd @10k.” RX 2B, at 4. Unexplained is how it was “ok to 62,000” when, with this order, The Drug Shoppe was over its CSL by more than 12,000 du. Also, notwithstanding Respondents' representation (to the DI only days before) that its policy required it to independently verify the information it obtained from its customers, there is no evidence that Respondent did so with respect to The Drug Shoppe's claim that a large number of the prescriptions were for HIV patients.

The file includes a due diligence survey of the same date. According to the survey, The Drug Shoppe reported that it filled 160 prescriptions per day, of which 60 percent were controlled and 40 percent were schedule II drugs. RX 2B, at 6. The Drug Shoppe asserted that it declined 20 prescriptions a day, and that in ensuring that the doctors were exercising proper standards of care, it looked at the age of its patients, talked to the doctor, and asked about the kind of pain and reason.

Id.

The Drug Shoppe also asserted that it had stopped filling prescriptions for a certain physician because the doctor was “writing too much pain med or staff gives run around.”

Id.

However, the size of the oxycodone 30 prescriptions that The Drug Shoppe was fillings begs the question of what quantity was “too much.”

In September 2009, Respondent shipped an additional 62,000 dosage units of oxycodone 30 mg. However, on each occasion on which the orders were shipped, The Drug Shoppe's orders exceeded the 62,000 CSL by a wide

margin. Specifically, on September 1, Respondent filled an order for 17,500 du of oxycodone 30, bringing the total of the filled orders to 79,500 du.

GX 10F, at 29; 32-33. The only note pertaining to the order is a SOMS note indicating that Ms. Seiple released the order, the reason being: “shipping under current limit of 175 bottles.” GX 16, at 234. Despite the representations Respondent made to DEA regarding its policy for reviewing those orders held by the SOMS, there is no evidence that it contacted The Drug Shoppe and obtained an explanation for the order and a new UR. Nor did it report the order as suspicious.

This total includes orders for oxycodone 30 in the following amounts: 20,000 du on Aug. 3; 20,000 du on Aug. 7; 1,000 du on Aug. 10; 19,500 du on Aug. 21; it also includes 500 du of Endocet 5 on Aug. 6 and 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.

Two days later, Respondent shipped 15,000 du of oxycodone 30; with this shipment, The Drug Shoppe's filled orders totaled 74,500 du on a rolling 30-day basis.

GX 10F, at 29, 32-33. There are SOMS notes corresponding to two orders on this date: The first, entered by Ms. Seiple, states: “shipping with reservation review with wayne”; the second, entered by Mr. Schulze, states: “ok to ship under current size limit.” GX 16, at 234. However, here again, there is no evidence that Respondent contacted The Drug Shoppe and obtained an explanation for the order and a new UR. Nor did it report the order as suspicious.

This total includes orders for oxycodone 30 in the following amounts: 20,000 du on Aug. 7; 1,000 du on Aug. 10; 19,500 du on Aug. 21; and 17,500 du on Sept. 1; it also includes 500 du of Endocet 5 on Aug. 6 and 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.

On September 8, Respondent shipped another 15,000 du of oxycodone 30; with this shipment, The Drug Shoppe's filled orders totaled 69,000 du on a rolling 30-day basis.

GX 10F, at 29, 32. A SOMS note corresponding to this date indicates that Ms. Seiple approved an order and states: “ok to ship see UR on miox.”

GX 16, at 234. Here again, there is no evidence that Respondent contacted the pharmacy and obtained an explanation for the order and a new UR. Nor did it report the order as suspicious.

This total includes orders for oxycodone 30 in the following amounts: 1,000 du on Aug. 10; 19,500 du on Aug. 21; 17,500 du on Sept. 1; and 15,000 du on Sept. 3; it also includes 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.

The last four letters of this entry could also be “mlox.” GX 16, at 234. Regardless, Respondent's records contain no explanation for what either miox or mlox means.

On September 16, Respondent shipped another 14,500 du of oxycodone 30; with this shipment, The Drug Shoppe's filled orders totaled 81,500 du on a rolling 30-day basis.

A SOMS note of this date states: “ok to ship at current limit this order is 62k.” GX 16, at 235. Unexplained is how The Drug Shoppe's order placed it at its current limit when its orders exceeded the CSL by 19,500 du. And here again, there is no evidence that Respondent contacted The Drug Shoppe to obtain an explanation for the order and a new UR. Nor did it report the order as suspicious.

This total includes orders for oxycodone 30 in the following amounts: 19,500 du on Aug. 21; 17,500 du on Sept. 1; 15,000 du on Sept. 3; and 15,000 du on Sept. 8.

In October, Respondent shipped to The Drug Shoppe 55,200 du of oxycodone 30 mg; 3,600 du of oxycodone 15 mg; 600 oxycodone 20 mg; and 2,600 du of combination oxycodone products for a total of 62,000 du. GX 10F, at 29, 31-33. None of the orders placed The Drug Shoppe over its CSL.

On November 9, Respondent shipped to The Drug Shoppe 14,400 du of oxycodone 30 and 1,000 du of oxycodone 10/325. Thus, on a rolling 30-day basis, Respondent had filled orders totaling 74,700 du.

This total includes orders for oxycodone 30 in the following amounts: 18,000 du on Oct. 12; 14,400 du on Oct. 20; 7,200 du on Oct. 23; and 14,400 du on Nov. 2; it also includes an order for 600 du of oxycodone 20 on Oct. 22; an order for 3,600 du of oxycodone 15 on Oct. 20; and orders for 300 and 800 du of Endocet 10 on Oct. 20 and 26. GX 10F, at 29, 33-33.

An MFR entry dated November 9 states: “update UR last on file w 5/09” and “called to get updated UR.” Further notes state: “Per Jen ship w/reservation” and “still need UR for future orders.” RX 2B, at 4;

see also

GX 16, at 236 (SOMS note: “Ship update reservation getting an updated ur”).

The next day, Respondent obtained a UR for the month of October 2009.

Id.; see also id.

at 72-80, 140-146. However, the UR listed the drugs in alphabetical order (rather than the drugs by the quantity dispensed) and did not provide a figure for the pharmacy's total dispensings.

See id.

Moreover, there is no evidence that Respondent obtained an explanation for the order from The Drug Shoppe.

As for the UR, it showed that The Drug Shoppe had dispensed 357 prescriptions totaling 66,271 du of oxycodone 30 (for an average of 186 du per prescription) and 33 prescriptions totaling 4,997 du of oxycodone 15 (for an average of 151 du per prescriptions).

Id.

at 141-42. The UR also showed that The Drug Shoppe had dispensed 4,208 du of various formulations of OxyContin and extended release oxycodone,

as well as 480 du of oxycodone 5mg and 4,650 du of combination oxycodone drugs (including Endocet), for a total of 80,606 du of oxycodone products.

Id.

at 77, 142.

This included 21 prescriptions totaling 2,078 du of OxyContin 80 mg (for an average quantity of 99 du per Rx), as well as 26 prescriptions totaling 1,590 du of OxyContin (and oxycodone er) 40 mg.

On November 16, Respondent filled an order for 2,400 du of oxycodone 30; upon filling the order, Respondent had shipped 63,900 du of oxycodone on a rolling 30-day basis, thus placing The Drug Shoppe's orders over the CSL.

GX 10F, at 29. The corresponding SOMS note states: “ok to ship w/reservation oxy within size for period. Current site visit needed.” GX 16, at 237. There is, however, no evidence that Respondent contacted the pharmacy and obtained an explanation for the order.

This total includes orders for oxycodone

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.