Need for Heightened Vigilance Illustrated by Pharmaceutical Manufacturer Mallinckrodt’s Settlement with DEA for $35 Million Based on Suspicious Orders

In an unprecedented settlement, Mallinckrodt, LLC, one of the largest pharmaceutical manufacturers of generic oxycodone, has agreed to pay Federal Drug Enforcement Agency (DEA) $35 million to settle allegations that they violated certain provisions of the Controlled Substance Act (CSA). The allegations included that Mallinckrodt failed to meet its obligations to detect and notify the DEA of suspicious orders of controlled substances, such as oxycodone, (a drug at the height of the current opioid epidemic); and that Mallinckrodt’s company batch records depicting number of tablets manufactured were inaccurate.  

Specifically, the allegations detailed how Mallinckrodt failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances – orders that are unusual in their frequency, size, or other patterns indicative of misused or diversion. From 2008 until 2011, Mallinckrodt allegedly supplied distributors who then supplied various pharmacies and pain clinics with an increasingly excessive quantity of oxycodone pills without ever notifying DEA of these suspicious orders.

The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York, creating discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records, which is a critical first step in the supply chain.  

In addition to the large monetary settlement amount, the groundbreaking nature of the settlement involves the requiring of a manufacturer to utilize chargeback, and similar data, to monitor and report to the DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.

Recently, the DEA has looked to target drug wholesalers and distributors with monetary penalties based on their failure to monitor and report suspicious orders. The Mallinckrodt settlement is the first to target the pharmaceutical manufacturer, an actor a level removed, and hold the manufacturer liable for suspicious sales at the next level of the supply chain. This settlement illustrates the vigilance all actors, starting from the pharmaceutical manufacturer to the pharmacy, must employ and utilize when dealing with controlled substances, especially opioids. It also illustrates the importance of robust compliance plans in order to assure compliance with applicable laws for those actors dealing with controlled substances, particularly opioids.

It is important for pharmaceutical manufacturers, drug wholesalers/distributors, and pharmacies to know their risk and implement a compliance plan. Contact Frier Levitt today to speak to an attorney.

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