The Department of Justice announced that McKesson Corporation, one of the nation’s largest distributors of pharmaceutical drugs, agreed to pay a record $150 million civil penalty for alleged violations of the Controlled Substances Act (CSA).
The nationwide settlement requires McKesson to suspend sales of controlled substances from distribution centers in Colorado, Ohio, Michigan and Florida for multiple years. The staged suspensions are among the most severe sanctions ever agreed to by a Drug Enforcement Administration (DEA) registered distributor. The settlement also imposes new and enhanced compliance obligations on McKesson’s distribution system.
In 2008, McKesson agreed to a $13.25 million civil penalty and administrative agreement for similar violations. In this case, the government alleged again that McKesson failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances distributed to its independent and small chain pharmacy customers – i.e., orders that are unusual in their frequency, size, or other patterns. From 2008 until 2013, McKesson supplied various U.S. pharmacies an increasing amount of oxycodone and hydrocodone pills, frequently misused products that are part of the current opioid epidemic.
The government’s investigation developed evidence that even after designing a compliance program after the 2008 settlement, McKesson did not fully implement or adhere to its own program. In Colorado, for example, McKesson processed more than 1.6 million orders for controlled substances from June 2008 through May 2013, but reported just 16 orders as suspicious, all connected to one instance related to a recently terminated customer.
In addition to the monetary penalties and suspensions, the government and McKesson agreed to enhanced compliance terms for the next five years. Among other things, McKesson has agreed to specific, rigorous staffing and organizational improvements; periodic auditing; and stipulated financial penalties for failing to adhere to the compliance terms. Critically, the settlement will require McKesson to engage an independent monitor to assess compliance – the first independent monitor of its kind in a CSA civil penalty settlement.
This was a multi-district investigation that involved several DEA Field Divisions including the San Francisco Field Division. Several U.S. Attorney’s Offices participated in the case including the Central and Eastern Districts of California,
This is the second reported recovery by federal authorities against a drug distributor for failing to report suspicious orders in less than a month.
Last December, a drug distributor owned by Cardinal Health Inc agreed to pay $10 million to resolve claims it failed to alert the U.S. Drug Enforcement Administration to suspiciously large orders of addictive painkillers by New York-area pharmacies.
The Kinray settlement came after a DEA investigation of pharmacies in New York and elsewhere that had ordered unusually large and frequent shipments of oxycodone or hydrocodone, according to court records.
From January 2011 and May 2012, Kinray shipped the drugs to more than 20 New York pharmacy locations in amounts that were many times greater than the distributor’s average sales of controlled substances to all of its customers, the lawsuit said. Kinray ignored numerous “red flags” and did not report any suspicious orders to the DEA despite requirements that it do so for such highly regulated drugs, the lawsuit said.
The latest agreement stemmed from a 2012 settlement with the DEA in which its facility in Lakeland, Florida, was suspended from selling painkillers and other drugs for two years, according to Cardinal. The 2012 deal only resolved administrative aspects of the case, not potential fines Cardinal Health faced in Florida or elsewhere. The Dublin, Ohio-based company has set aside $44 million to cover those potential liabilities.
Cardinal Health, which announced its $1.3 billion acquisition of Kinray in 2010, said it continues to work with the U.S. Justice Department to resolve the matter.