Pharmacies across the country are running into the same problem. Without warning, their wholesaler tells them they can no longer purchase controlled substances because the manufacturer, frequently Mallinckrodt, stopped processing chargebacks on their account. Mallinckrodt has long been one of the largest manufacturers of controlled substances in the country. The effect is immediate, and it lands on patients first. Controlled substance orders that were routine the day before stop going through, prescriptions cannot be filled, and patients are left scrambling to find another pharmacy while the pharmacy tries to figure out what happened and how to fix it.
Why This Happens
Manufacturers registered under the Controlled Substances Act must maintain systems designed to identify suspicious orders, including orders of unusual size, orders that deviate substantially from a normal pattern, and orders of unusual frequency. Mallinckrodt’s version of this compliance framework traces in part to a 2017 settlement, in which the company paid $35 million over allegations it failed to maintain an effective system to detect and report suspicious controlled substance orders, including oxycodone orders. As part of an agreement with the DEA, Mallinckrodt agreed going forward to use the chargeback data wholesalers report back in exchange for rebates, along with other transaction level detail on downstream pharmacy sales, to flag unusual pharmacies and stop shipping to them. Separately, the DEA’s Automation of Reports and Consolidated Orders System (ARCOS) tracks the distribution of certain controlled substances from manufacture through commercial distribution to the retail level and provides manufacturers and distributors with information that can assist in evaluating potential diversion risks.
Pharmacies may come under scrutiny in several ways. Most often it is a gradual buildup, where a pharmacy’s ordering may drift upward faster than that of peers, a few high-risk drug codes dominate purchases, or the same threshold keeps getting overridden, with each event adding a mark until Mallinckrodt seeks more information. Other events can prompt more immediate scrutiny. For example, a licensing problem, state board action, law enforcement inquiry, or an unexplained order may trigger a hold with no buildup at all. Either way, once Mallinckrodt determines that its compliance concerns have not been adequately resolved, shipments may stop, regardless of whether the pattern was truly suspicious or simply the result of a shortage, seasonal spike, or a new prescriber sending more business the pharmacy’s way.
It Is Not Always the Manufacturer Acting Alone
A related and increasingly common pattern involves the wholesaler itself imposing a purchasing suspension, sometimes for a full twelve months, and pointing to a manufacturer’s internal list as the reason. In several matters our office has handled, pharmacies received abrupt notice from a wholesaler that their controlled substance ordering privileges were suspended, with little or no written explanation. When pressed, the wholesaler’s representatives indicated only that the pharmacy was “on a list” tied to Mallinckrodt and that its dispensing profile fell outside unspecified program parameters.
Notably, in some of these matters, the pharmacies were sourcing the drug in question from a Mallinckrodt competitor through channels unaffiliated with Mallinckrodt, raising a separate and serious question about whether the suspension reflects a legitimate diversion control judgment or improper manufacturer influence over a wholesaler’s distribution decisions. Wholesalers do play an essential role in diversion prevention, but their controlled substance compliance obligations require meaningful due diligence and evaluation of potential diversion risks.
Where a suspension cannot be tied to specific criteria, comparative benchmarks, or an individualized finding, especially where it appears to track a manufacturer’s competitive interests rather than a compliance concern, pharmacies should not assume the suspension is the last word. Depending on the facts, such conduct may warrant evaluation under antitrust and other applicable laws, including whether the circumstances support potential claims involving concerted refusals to deal, exclusive dealing, or other anticompetitive conduct. Legal remedies may also be available to challenge or seek relief from an unjustified suspension.
What to Do If This Happens to You
Do not treat the restriction as final, but do not expect a quick phone call to fix it either. Start by determining exactly what is affected, including which manufacturer, which products, and whether the hold applies through one wholesaler or multiple. Put that same question in writing, whether to Mallinckrodt or to the wholesaler that imposed the suspension, and ask specifically what is required for reconsideration and what criteria were applied to reach that decision in the first place.
From there, the work is largely about your own records and compliance documentation. Pull together your purchasing and dispensing records, typically for at least the past ninety days, and reconcile what came in against what actually went out to patients. If something looks unusual, be ready to explain it with supporting documentation, not just an assurance that everything is fine.
In practice, this generally takes the form of a Controlled Substance Compliance Report built from purchasing and dispensing data, which may then be submitted to the manufacturer’s compliance committee for review, followed by any additional questions the committee raises before it will consider lifting the restriction. If the manufacturer agrees to remove the restriction, the pharmacy may then need to apply for reinstatement with its wholesaler or buying group, and that step can itself involve further due diligence inspection.
Pharmacies that show up with organized records and a clear explanation get through this process faster than pharmacies that only show up with a promise to do better. In some cases, bringing in an outside compliance consultant to review the pharmacy’s ordering and documentation before responding can carry real weight, since a manufacturer may give greater consideration to an independent review than a pharmacy’s internal assessment alone. This is a multistep process, and pharmacies should not go through it without legal counsel guiding the submission and the follow-up process, particularly where the restriction threatens patient access or the pharmacy’s ability to continue dispensing controlled substances.
How Frier Levitt Can Help
Frier Levitt regularly helps pharmacies navigate Mallinckrodt restrictions, wholesaler-imposed suspensions, and similar manufacturer holds, from assembling the compliance package and preparing the Controlled Substance Compliance Report to negotiating reinstatement with the manufacturer and the wholesaler. Where the facts warrant it, we also assist pharmacies in pursuing legal remedies against a wholesaler or manufacturer whose restriction cannot be justified on compliance grounds.
If your pharmacy has received a controlled substance purchasing restriction or suspension notice, or you want to put safeguards in place before one arrives, please contact Frier Levitt to discuss your options and next steps.
