[Federal Register: July 3, 2007 (Volume 72, Number 127)]
[Notices]
[Page 36487-36504]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03jy07-94]
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DEPARTMENT OF JUSTICE
Drug Enforcement Administration
[Docket No. 07-7]
Southwood Pharmaceuticals, Inc.; Revocation of Registration
On November 30, 2006, I, the Deputy Administrator of the Drug
Enforcement Administration, issued an Order to Show Cause and Immediate
Suspension of Registration to Southwood Pharmaceuticals, Inc.
(Respondent), of Lake Forest, California. The Order immediately
suspended Respondent's DEA Certificate of Registration, RS0204898,
based on my preliminary finding that its continued registration
``constitute[s] an imminent danger to the public health and safety
because of the substantial likelihood that Southwood [would] continue
to supply pharmacies that divert large quantities of controlled
substances.'' Show Cause Order at 3. The Order also sought the
revocation of Respondent's registration on the ground that its
continued registration is ``inconsistent with the public interest.''
Id. at 1 (citing 21 U.S.C. 823(d) & 824(a)(4)).
The Show Cause Order alleged that between November 2005 and August
2006, Respondent's sales to pharmacies of hydrocodone products
``increased from approximately 7,000 dosage units per month to
approximately 3,000,000 dosage units per month,'' and that the increase
was ``directly attributable to [its] supplying controlled substances to
pharmacies that it knew or should have known were engaged in the
widespread diversion of controlled substances.'' Id. The Show Cause
Order alleged that several of Respondent's customers were distributing
``large amounts of hydrocodone based on orders placed by customers
using various Internet Web sites.'' Id.
The Show Cause Order specifically alleged that ``from December 12,
2005, to August 31, 2006, [Respondent] distributed approximately
8,671,000 dosage units of hydrocodone products to Medipharm-Rx, Inc.,''
and did so ``under circumstances that clearly indicated that Medipharm
was engaged in the diversion of controlled substances.'' Id. at 1-2.
The Show Cause Order further alleged that these circumstances included
that ``ninety-nine percent of Medipharm's business [with Respondent]
involved the sale of controlled substances,'' that Medipharm was owned
by an individual who also owned a Web site ``that solicit[ed] orders
for controlled substances'' and used practitioners who issued
prescriptions outside of ``the usual course of professional practice,''
and that ``Medipharm's orders were of an unusual size, deviated
substantially from a normal pattern, and were of an unusual
frequency.'' Id. at 2.
Relatedly, the Show Cause Order alleged that Respondent had ``also
supplied controlled substances under similarly suspicious
circumstances'' to fourteen other pharmacies. Id. The Show Cause Order
thus alleged that Respondent ``repeatedly supplied excessive quantities
of hydrocodone to pharmacies that it knew or should have known were
diverting hydrocodone.'' Id. Moreover, the Show Cause Order alleged
that notwithstanding ``the unusual size and frequency of the orders
placed by Medipharm and others, as well as the fact that the orders
substantially deviated from the normal pattern of orders received by''
it, Respondent never reported any of the orders as suspicious. Id. at
2-3.
Next, the Show Cause Order alleged that on July 17, 2006, the
Office of Diversion Control's E-Commerce Section held a conference call
with Respondent's representatives to discuss ``the distribution of
controlled substances to Internet pharmacies.'' Id. at 3. During the
call, DEA officials allegedly presented Respondent with ``information
on the characteristics of Internet pharmacies and the nature of their
illegal activities.'' Id. DEA officials also allegedly discussed with
Respondent such subjects as DEA's 2001 Guidance Document on the use of
the Internet to prescribe controlled substances, the requirement for a
valid prescription under federal law and existing professional
standards, DEA's regulation requiring the reporting of suspicious
orders, and the ``practices and ordering patterns of internet
pharmacies.'' Id. The Show Cause Order further alleged that
notwithstanding this information, in August 2006, Respondent proceeded
to distribute large quantities of hydrocodone to five different
internet pharmacies. Id. The Show Cause Order thus alleged that
Respondent ``has failed to maintain effective controls against
diversion and that [its] continued registration * * * would be
inconsistent with the public interest.'' Id.
On December 6, 2006, the Show Cause Order was served on Respondent.
ALJ Ex. 2. Thereafter, on December 29, 2006, Respondent, through its
counsel, requested a hearing. ALJ Ex. 3. The matter was assigned to
Administrative Law Judge (ALJ) Gail Randall, who conducted a hearing in
Arlington, Virginia, from February 5 through February 8, 2007. At the
hearing, both parties called witnesses and introduced documentary
evidence. Following the hearing, both parties submitted briefs
containing proposed findings of fact, conclusions of law, and argument.
On March 30, 2007, the ALJ issued her recommended decision (ALJ).
In that decision, the ALJ concluded that DEA had proved that
``Respondent's continued registration to handle hydrocodone products
would be against the public interest.'' ALJ at 61-62. The ALJ
concluded, however, that Respondent ``has kept an open dialogue with
the DEA and has attempted to come into compliance with the DEA's
regulations.'' Id. at 62. While acknowledging ``the egregious
quantities of hydrocodone products the Respondent irresponsibly sold to
registered [i]nternet pharmacies during 2005 and 2006,'' the ALJ
nonetheless ``conclude[d] that revocation of * * * Respondent's entire
DEA registration is too severe a remedy.'' Id.
Continuing, the ALJ explained that ``the record contains no
evidence of * * * Respondent's improper handling of any other
controlled substances, especially in its sales of manufactured products
to its practitioner customers.'' Id. Noting that Respondent had hired
an ``experienced officer who will be making the final decisions
concerning [its] compliance measures,'' and that this would provide
``an increased level of protection of the public interest,'' the ALJ
recommended that Respondent's authority to handle hydrocodone products
be revoked but that it retain its
[[Page 36488]]
authority to handle other controlled substances. Id. The ALJ further
recommended that DEA monitor Respondent to ensure that it comply with
both her proposed restrictions and Respondent's decision to cease
distributing to Florida-based internet pharmacies. Id.
Thereafter, the Government filed exceptions. In its exceptions, the
Government contended that the record established that Respondent had
also distributed excessive quantities of other controlled substances
included phentermine and alprazolam. See Gov. Exceptions at 2-9. The
Government also contended that the ALJ's reliance on Respondent's
hiring of a new Chief Operating Officer (COO) was misplaced because the
company had, in fact, sold increasing amounts of controlled substances
to ``rogue [i]nternet pharmacies'' for several months thereafter. Id.
at 11. The Government further argued that under the ``day to day
leadership'' of its new COO, Respondent had continued to constructively
distribute controlled substances to its physician clients after its
registration was suspended. Id. According to the Government, this
conduct ``refutes the ALJ's hypothesis that [the new COO] will
effectively manage Respondent's compliance program.'' Id.
In response, Respondent argued that the Government had ``largely
buried its concerns'' regarding the distribution of phentermine noting
that the drug was not mentioned in the Show Cause Order, the lengthy
stipulation of facts, or in the Government's opening statement.
Respondent's Resp. at 2-3. Respondent further argued that it has
stipulated that it will not ``ship phentermine to any pharmacy, should
its registration be restored.'' Id. at 2. With respect to alprazolam,
Respondent argued that ``the government wholly buried its concern with
this substance, making explicit reference to it only in its
Exceptions.'' Id. Finally, Respondent argued that the ALJ's findings
regarding its new COO are based on credibility determinations and are
entitled to deference. Id. at 4-6.
Thereafter, on May 8, 2007, the ALJ forwarded the record to me for
final agency action. Having reviewed the record as a whole, I hereby
issue this decision and final order. I adopt the ALJ's findings of fact
and conclusions of law except as expressly noted herein. However, for
reasons explained below, I conclude that the ALJ's proposed remedy is
insufficient to protect the public interest. While I am mindful of the
corrective measures engaged in by Respondent, its sales of
extraordinary quantities of controlled substances to entities which it
had reason to know were diverting the drugs caused extraordinary harm
to public health and safety. Therefore, Respondent's registration will
be revoked and its pending renewal application will be denied. I make
the following findings.
Findings
Respondent Southwood Pharmaceuticals, Inc., is the holder of DEA
Certificate of Registration, RS0204898, which authorizes it to
manufacture controlled substances in schedules 3, 3N, 4, and 5. GX 1.
While the expiration date of its registration was February 28, 2007,
see id., Respondent submitted a timely renewal application. See Resp.
Ex. 110. Respondent's registration thus remains in effect (although in
suspended status) pending the issuance of this order. 5 U.S.C. 558(c).
Respondent's market niche was the repackaging of oral dose generic
drug products into common prescription quantities which it then
distributed. ALJ at 3. Until December 2005, Respondent's customer base
was primarily comprised of dispensing physicians who specialized in
treating injured workers, pain management and urgent care. Id. at 3-4.
Respondent also distributed its products to group practices, specialty
clinics and some traditional retail pharmacies. Id. Among the drugs
distributed by Respondent were schedule III controlled substances
containing hydrocodone.\1\ See 21 CFR 1308.13(e).
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\1\ By itself, hydrocodone is a schedule II controlled
substance. 21 CFR 1308.12(b)(1). Respondent did not, however,
distribute schedule II hydrocodone. Throughout this decision, the
term hydrocodone refers to those schedule III controlled substances
which contain hydrocodone.
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Respondent's Hydrocodone Sales
According to data submitted by Respondent through DEA's ARCOS
system, during the four-month period from August through November 2005,
it sold 3,949,454 dosage units of hydrocodone products. ALJ at 4. Of
this amount, Respondent's individual practitioner customers purchased
3,882,507 dosage units of the drug. Id. By contrast, Respondent sold
approximately 29,940 dosage units of hydrocodone products to its retail
pharmacy customers, for an average of 7,485 dosage units per month. Id.
at 5.
On December 7, 2005, Respondent entered a new line of business--
supplying internet pharmacies--by selling hydrocodone to Medipharm-Rx,
Inc. (Medipharm), a Florida-based internet pharmacy.\2\ Id. Over the
ensuing months, Respondent acquired numerous additional internet
pharmacy customers to whom it repeatedly sold large quantities of
hydrocodone.
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\2\ For purposes of this decision, the term ``internet
pharmacy'' refers to a pharmacy that fills a prescription that is
issued by the physician without the physician having entered into a
legitimate doctor-patient relationship under existing professional
standards. Typically, a person seeking controlled substances goes to
an internet site, fills out a questionnaire which requests basic
medical information and payment/shipping information, and requests a
specific drug; some Web sites may require that the patient submit a
medical record, which is easily falsified. Thereafter, the
customer's information is forwarded to a physician either contracted
to or employed by the Web site, who reviews the information and
issues a prescription, either with or without the benefit of a
perfunctory telephone consultation, but always without having
conducted a face-to-face review of the person's medical history and
a physical exam. The prescription is then either forwarded to the
pharmacy or downloaded electronically by the pharmacy; the pharmacy
then fills the prescription and ships it to the customer. See GX 3.
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According to the stipulated facts, from December 2005 through
October 2006, Respondent supplied Medipharm with an average of
1,011,882 dosage units of hydrocodone per month. ALJ at 5. Respondent
also supplied Medipharm with approximately 538,290 dosage units of
hydrocodone during the first half of November 2006, at which time
Medipharm's registration was immediately suspended under 21 U.S.C.
824(d). Id. at 5-6.
The following table reflects Respondent's monthly distributions of
hydrocodone to Medipharm:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
December 2005.............................................. 817,010
January 2006............................................... 939,340
February 2006.............................................. 1,142,250
March 2006................................................. 1,071,450
April 2006................................................. 703,550
May 2006................................................... 808,500
June 2006.................................................. 1,142,000
July 2006.................................................. 800,340
August 2006................................................ 1,246,560
September 2006............................................. 1,450,380
October 2006............................................... 1,009,320
------------------------------------------------------------------------
Id. at 5. According to a July 2006 report created by Respondent of its
largest purchasers of controlled substances from December 2005 through
June 2006, controlled substances constituted ninety-nine percent of its
prescription drug sales to Medipharm. Resp. Ex. 47.
On December 19, 2005, Respondent obtained another Florida-based
internet pharmacy customer, Accumed Rx, Inc. (Accumed). ALJ at 7.
Respondent supplied Accumed with approximately 5,884,212 dosage units
of hydrocodone as tabulated below:
[[Page 36489]]
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
December 2005.............................................. 273,630
January 2006............................................... 203,070
February 2006.............................................. 147,180
March 2006................................................. 83,500
April 2006................................................. 169,000
May 2006................................................... 519,380
June 2006.................................................. 320,470
July 2006.................................................. 442,000
August 2006................................................ 1,267,770
September 2006............................................. 503,020
October 2006............................................... 393,610
November 2006.............................................. 1,561,582
------------------------------------------------------------------------
Id. at 8. Between December 2005 and June 2006, controlled substances
comprised ninety-nine percent of Respondent's prescription drug sales
to Accumed. Resp. Ex. 47.
On December 21, 2005, Respondent obtained another Florida-based
internet pharmacy customer, Avee Pharmacy, Inc. (Avee). ALJ at 6.
Respondent's sales of hydrocodone to Avee averaged 566,259 dosage units
a month and are tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
December 2005.............................................. 346,140
January 2006............................................... 859,860
February 2006.............................................. 0
March 2006................................................. 912,190
April 2006................................................. 76,190
May 2006................................................... 212,000
June 2006.................................................. 442,800
July 2006.................................................. 94,000
August 2006................................................ 506,430
September 2006............................................. 695,800
October 2006............................................... 537,900
November 2006.............................................. 2,111,800
------------------------------------------------------------------------
Id. Respondent also supplied Avee with 238,140 dosage units during the
first five days of December 2006. Id. at 7. From December 2005 through
June 2006, controlled substances constituted one hundred percent of
Respondent's sales to Avee. Resp. Ex. 47.
On November 17, 2006, Respondent notified Avee by letter that
effective December 15, 2006, it would not supply the pharmacy, whose
registration had been continued on a day-to-day basis past its
expiration date and not renewed, unless it obtained a renewal of its
registration.\3\ Resp. Ex. 77. Between November 17 and December 5,
2006, however, Respondent supplied Avee with approximately 1,804,940
dosage units of hydrocodone. ALJ at 7.
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\3\ Effective December 15, 2006, Respondent instituted a policy
of not supplying registrants whose registration remained in effect
on a day-to-day basis for more than two months past the expiration
date. Resp. Ex. 77. Respondent's DEA registration was suspended
before the policy became effective.
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On January 4, 2006, United Prescription Services, Inc. (United),
another internet pharmacy, became a customer of Respondent. ALJ at 14.
Respondent sold an average of 92,988 dosage units of hydrocodone per
month to United as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
February 2006.............................................. 341,160
March 2006................................................. 288,000
April 2006................................................. 18,000
May 2006................................................... 18,000
June 2006.................................................. 37,200
July 2006.................................................. 18,000
August 2006................................................ 18,000
September 2006............................................. 0
October 2006............................................... 12,000
November 2006.............................................. 179,520
------------------------------------------------------------------------
Id.
From the date United became a customer through June 2006,
controlled substances constituted one hundred percent of Respondent's
prescription drug sales to it. Resp. Ex. 47. On November 17, 2006,
Respondent notified United that it would stop supplying the pharmacy if
it did not obtain a renewal of its registration. Id. at 14. From
November 21, 2006, through December 5, 2006, however, Respondent
distributed to United approximately 158,280 dosage units of
hydrocodone. Id.
On January 25, 2006, Respondent acquired two more internet pharmacy
customers, RKR Holdings, d/b/a Medichem RX Pharmacy (Medichem), and Bi-
Wise Drugs, Inc. (Bi-Wise). ALJ at 11, 13. Between January and November
2006, Respondent sold Medichem a monthly average of 216,638 dosage
units of hydrocodone as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
January 2006............................................... 66,000
February 2006.............................................. 264,000
March 2006................................................. 276,000
April 2006................................................. 168,000
May 2006................................................... 286,200
June 2006.................................................. 264,000
July 2006.................................................. 120,000
August 2006................................................ 216,000
September 2006............................................. 220,680
October 2006............................................... 262,140
November 2006.............................................. 240,000
------------------------------------------------------------------------
Id. at 11-12. From the date it became a customer through June 2006,
controlled substances constituted one hundred percent of Respondent's
prescription drug sales to Medichem. Resp. Ex. 47.
From January 25 through October 2006, Respondent's hydrocodone
sales to Bi-Wise averaged 117,150 dosage units per month. ALJ at 13.
Moreover, from the date Bi-Wise became a customer through the end of
June 2006, controlled substances constituted ninety-nine percent of
Respondent's prescription drugs sales to it. Resp. Ex. 47. Respondent's
hydrocodone sales to Bi-Wise are tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
January 2006............................................... 70,800
February 2006.............................................. 18,240
March 2006................................................. 152,750
April 2006................................................. 63,860
May 2006................................................... 112,300
June 2006.................................................. 180,000
July 2006.................................................. 131,750
August 2006................................................ 185,940
September 2006............................................. 111,180
October 2006............................................... 144,680
------------------------------------------------------------------------
ALJ at 13.
On February 16, 2006, Respondent acquired another internet pharmacy
customer, Vin-Kash, Inc., d/b/a/ Medicom RX. Id. at 12. Through October
2006, Respondent supplied Medicom with an average of 190,281 dosage
units of hydrocodone per month. Id. Respondent's sales are tabulated
below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
February 2006.............................................. 14,000
March 2006................................................. 54,430
April 2006................................................. 157,850
May 2006................................................... 175,850
June 2006.................................................. 231,100
July 2006.................................................. 227,240
August 2006................................................ 117,650
September 2006............................................. 164,000
October 2006............................................... 375,690
November 2006.............................................. 385,000
------------------------------------------------------------------------
Id. Respondent also supplied Medicom with approximately 82,750 dosage
units of hydrocodone during the first five days of December 2006. Id.
at 13. Moreover, from the date it became a customer through June 2006,
controlled substances comprised one hundred percent of Respondent's
prescription drug sales to Medicom. Resp. Ex. 47.
On February 20, 2006, Respondent obtained another internet pharmacy
customer, Discount Mail Meds (Discount). ALJ at 8. From the inception
of the relationship through November 2006, Respondent supplied Discount
with an average of 330,324 dosage units of hydrocodone per month as
tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
February 2006.............................................. 72,000
March 2006................................................. 269,500
April 2006................................................. 269,000
May 2006................................................... 364,500
June 2006.................................................. 373,600
July 2006.................................................. 317,780
August 2006................................................ 292,720
September 2006............................................. 340,100
October 2006............................................... 501,280
November 2006.............................................. 502,760
------------------------------------------------------------------------
[[Page 36490]]
Id. at 9. Respondent also supplied Discount with 43,200 dosage units of
hydrocodone during the first five days of December 2006. Id. Moreover,
from the date it became a customer through June 2006, controlled
substances comprised one hundred percent of Respondent's prescription
drug sales to Discount. Resp. Ex. 47.
On February 22, 2006, Respondent commenced doing business with
Universal Rx (Universal). ALJ at 9. From February through October 2006,
Respondent supplied Universal with an average of 308,679 dosage units
of hydrocodone per month as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
February 2006.............................................. 60,000
March 2006................................................. 164,250
April 2206................................................. 291,000
May 2006................................................... 245,250
June 2006.................................................. 384,700
July 2006.................................................. 422,670
August 2006................................................ 394,070
September 2006............................................. 340,500
October 2006............................................... 453,690
November 2006.............................................. 330,660
------------------------------------------------------------------------
Id. at 9-10. From the date it became a customer through June 2006,
controlled substances comprised one hundred percent of Respondent's
prescription drug sales to Universal. Resp. Ex. 47.
On November 17, 2006, Respondent notified Universal that, effective
December 15, 2006, it would stop supplying the pharmacy unless it
obtained a renewal of its registration. ALJ at 10. During the last two
weeks of November 2006, Respondent shipped approximately 150,210 dosage
units of hydrocodone to Universal. Id. On November 30, 2006, Respondent
stopped shipments to Universal. Id
On March 3, 2006, Respondent began doing business with Medcenter,
Inc. (Medcenter), an entity owned by the same person who owned
Medipharm. Id. at 10-11. From March through October 2006, Respondent
supplied Medcenter with an average of 333,063 dosage units of
hydrocodone per month as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
March 2006................................................. 340,500
April 2006................................................. 141,000
May 2006................................................... 153,000
June 2006.................................................. 375,000
July 2006.................................................. 102,000
August 2006................................................ 567,000
September 2006............................................. 378,000
October 2006............................................... 608,000
------------------------------------------------------------------------
Id. Additionally, during the first two weeks of November, at which
point Medcenter's DEA registration was suspended pursuant to 21 U.S.C.
824(d), Respondent distributed 313,680 dosages units of hydrocodone to
it. Id. at 11. Moreover, from the date it became a customer through
June 2006, controlled substances constituted one hundred percent of
Respondent's prescription drug sales to Medcenter. Resp. Ex. 47.
On March 9, 2006, Respondent commenced doing business with CRJ
Pharmacy, Inc. (CRJ). ALJ at 15. From March through October 2006,
Respondent sold CRJ an average of 79,803 units of hydrocodone per month
as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
March 2006................................................. 63,360
April 2006................................................. 76,200
May 2006................................................... 25,320
June 2006.................................................. 49,240
July 2006.................................................. 52,200
August 2006................................................ 75,700
September 2006............................................. 96,000
October 2006............................................... 200,400
------------------------------------------------------------------------
Id. From the date it became a customer through June 2006, controlled
substances comprised ninety-eight percent of Respondent's prescription
drug sales to CRJ. Resp. Ex. 47.
In May 2006, Respondent acquired another two customers, Grand
Pharmacy (Grand), and Akshar Chemists, Inc., d/b/a Medicine Shoppe
(Medicine Shoppe). ALJ at 16-17. Respondent supplied Grand with an
average of 144,102 dosage units of hydrocodone per month between May
and November 2006 as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
May 2006................................................... 24,000
June 2006.................................................. 228,720
July 2006.................................................. 180,000
August 2006................................................ 180,000
September 2006............................................. 144,000
October 2006............................................... 144,000
November 2006.............................................. 108,000
------------------------------------------------------------------------
Id. at 17.
During the same period, Respondent supplied the Medicine Shoppe
with an average of 73,365 dosage units of hydrocodone per month as
tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
May 2006................................................... 62,100
June 2006.................................................. 162,340
July 2006.................................................. 164,875
August 2006................................................ 21,200
September 2006............................................. 12,000
October 2006............................................... 33,300
November 2006.............................................. 57,740
------------------------------------------------------------------------
Id. During the first five days of December 2006, Respondent also
supplied the Medicine Shoppe with approximately 17,010 dosage units of
hydrocodone. Id.
In July 2006, Q-R-G, Inc., d/b/a Duane's Discount Group (Duane's),
began purchasing hydrocodone from Respondent. Id. at 16. From July
through November 2006, Respondent supplied Duane's with an average of
191,808 dosage units of hydrocodone per month as tabulated below:
------------------------------------------------------------------------
Month Quantity
------------------------------------------------------------------------
July 2006.................................................. 188,400
August 2006................................................ 188,940
September 2006............................................. 145,500
October 2006............................................... 276,900
November 2006.............................................. 159,300
------------------------------------------------------------------------
Id. During the first five days of December 2006, Respondent supplied
Duane's with an additional 74,850 dosage units of hydrocodone.\4\ Id.
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\4\ Respondent also sold 502,750 dosage units of hydrocodone to
Woody Pharmacy Waterside, Inc., during April and May 2006, for an
average of 251,375 units per month. ALJ at 15-16. Respondent also
supplied Elite Pharmacy, Inc., with 140,000 dosage units of
hydrocodone during the month of January 2006. Id. at 18.
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From the date it began supplying internet pharmacies in December
2005 through November 2006, Respondent sold a total of approximately
44,087,355 dosage units of hydrocodone to these entities. Gov. Ex. 43.
at 1.\5\ Respondent's monthly sales of hydrocodone to these entities
grew from approximately 1.44 million dosage units in December 2005 to
5.78 million dosage units in November 2006. Id. at 2. By contrast,
during the even longer time frame of August 2005 through November 2006,
Respondent's sales of hydrocodone to its retail pharmacy customers
never exceeded more than 16,040 dosage units in a month and typically
never exceeded 10,000 dosage units in a month. Id. at 3.
---------------------------------------------------------------------------
\5\ This exhibit covers the period from August 2005 through
November 2006. Gov. Ex. 43. As found above, Respondent did not begin
distributing to internet pharmacies until December 2005.
---------------------------------------------------------------------------
The Government also introduced into evidence a table showing the
average purchase of hydrocodone products by retail pharmacies in the
State of Florida and nationwide during the period October 1, 2005,
through January 31, 2006. See Gov. Ex. 45, at 8. This evidence
established that Florida retail pharmacies purchased an average of
23,850 dosage units of hydrocodone during the four month period;
nationwide, retail pharmacies bought an average of 24,227 dosage units
of the drug. Id.
The record further establishes that many of Respondent's Florida-
based pharmacy customers were, in fact,
[[Page 36491]]
dispensing illegal prescriptions for controlled substances. More
specifically, the record demonstrates that Avee (see GX 51), Medipharm
(see GX 53 & 62), United (see GX 54), YPM Total Care Pharmacy (see GX
66), CRJ (GX 67), Bi-Wise (see Tr. 671-72); Universal (see id.), and
Accumed (see id.), were dispensing large numbers of prescriptions which
were not issued in the course of a legitimate doctor-patient
relationship and thus violated Federal law. See 21 CFR 1306.04; see
also Tr. 628-29, 639-45, 655-57, 660-67.
Respondent's Due Diligence Efforts
During the events at issue here, Mr. Robert Goodrich was
Respondent's Director of Operations and Regulatory Affairs. Tr. 311.
According to Mr. Goodrich, from ``a regulatory perspective,''
Respondent's due diligence in approving a new customer was limited to
verifying that the customer had a State license and a DEA registration.
Id. at 313-14. When asked by the Government whether Respondent had any
processes in place prior to approving a new customer to purchase
controlled substances, Mr. Goodrich testified that the primary process
was to check the customer's DEA registration and that there was ``no''
secondary process. Id. at 318; see also ALJ at 34 (FOF 117). Based
solely on its verifications of the entities' DEA registrations and
state licenses, Respondent commenced to ship large quantities of
controlled substances to the various internet pharmacies.
In early February 2006, Mr. Goodrich traveled to the Tampa Bay,
Florida area, to conduct on-site visits with Respondent's sales
representative, Tom Mollick, at several of the internet pharmacy
customers which Respondent had recently acquired including Medipharm,
Accumed, Medichem, Bi-Wise, and Avee. Tr. 319. According to Mr.
Goodrich, the pharmacies were selected because ``it was apparent that
they were a different type of a customer than what we'd been used to
dealing with.'' Id.
At Medipharm, Mr. Goodrich found that it was filling 700
prescriptions a day and noted that it was a ``Closed-Door (Mail Order)
Pharmacy.'' GX 16. In his report, Mr. Goodrich specifically noted that
``[t]he mail order business has ties to internet pharmacy with a large
amount of pain management and a growing percentage of traditional
maintenance medications.'' Id.
At Accumed, Mr. Goodrich determined that it was filling 350
prescriptions a day and that it also was a ``Closed-Door (Mail Order)
Pharmacy.'' GX 17. In his report, Mr. Goodrich observed that Accumed
has ``ties to the internet and * * * explained [its] requirement to
check prescriber credentials.'' Id.
At Medichem, Mr. Goodrich found that it was both a ``Retail &
Closed-Door (Mail-Order) Pharmacy'' with a volume of 100 prescriptions
per day. GX 18. Mr. Goodrich noted that while ``Medichem is primarily
filling prescriptions on a local and state level * * * there was
evidence of prescriptions being mailed out-of-state as well.'' Id. Mr.
Goodrich further observed that Medichem does ``have some ties to the
internet community and they appear to be in the process of determining
their market niche.'' Id.
At Avee, Mr. Goodrich found that it was a ``Closed-Door (Mail-
Order) Pharmacy,'' with a prescription volume of 500 per day. GX 20.
Mr. Goodrich specifically noted that ``Avee operates a closed pharmacy
that provides mail order fulfillment of prescriptions from various
sources, including internet-connected medical providers who provide
patient assessments and diagnosis through unconventional practice
models. Many of these prescriptions are connected to pain management
therapies involving the prescription of controlled substances.'' GX 20
(emphasis added).
Mr. Goodrich's report further noted that DEA investigators had
inspected Avee ``earlier that day.'' Id. Moreover, Avee's management
discussed with him ``the concerns that DEA had with establishing the
validity of the doctor-patient relationship that formed the basis of
the digital diagnosis that resulted in a prescription for controlled
substances being submitted to Avee for filling. Id. (emphasis added).
Mr. Goodrich further noted that the position of Avee's management ``was
that if the prescriber was not authorized to prescribe controlled
substances, then the DEA should revoke the prescriber's DEA
registration.'' Id. According to Mr. Goodrich's report, DEA
investigators had suggested to Avee's management that they meet with
the physicians ``from whom they receive the most prescriptions to
better evaluate them.'' Id.
When asked by the Government what constitutes an ``unconventional
practice model?,'' Mr. Goodrich testified that as he ``understood it,
that did not involve a patient going to the doctor's office necessarily
and presenting themselves in person.'' Tr. 347. Mr. Goodrich
subsequently acknowledged that he knew as early as February 2006, that
``[s]ome of the prescriptions [Avee] filled were not the result of
physical contact between the doctor and the patient.'' Id. at 348. Mr.
Goodrich also testified that Avee had provided him with the names of
two internet sites which were the source of some of the prescriptions
it filled. Id. at 351-52.
Notwithstanding the information he obtained during his visit with
Avee, Mr. Goodrich made no follow-up inquiries with its management
regarding whether they had determined if the physicians were writing
legitimate prescriptions. Id. at 352-53. Indeed, Mr. Goodrich made no
further inquiries of Avee regarding its business practices until the
middle of August 2006, after a meeting with DEA. Id. at 353. When asked
by the Government whether he was concerned by the fact that DEA had
visited Avee, Mr. Goodrich acknowledged that he did not ``know[] much
about this telemedicine thing,'' but ``felt that if [Avee] weren't
doing what they were supposed to do right, DEA wouldn't allow them to
continue in business.'' Id. at 354. Mr. Goodrich also testified that he
was not troubled by Avee management's contention that ``if the
prescriber was not authorized to prescribe controlled substances, then
the DEA should revoke the prescriber's DEA registration.'' Id.
Mr. Goodrich further acknowledged that at the time of his visit to
Avee, he was not ``versed'' in the requirement that a prescription must
be issued by a physician acting in the usual course of professional
practice even though he asserted that he was then ``aware that
pharmacies had obligations to ensure that they had valid
prescriptions.'' Id. at 355. Mr. Goodrich admitted that he had not gone
to DEA's website prior to Respondent's engaging in business with
internet pharmacies to determine whether the Agency had posted any
guidance on the subject. Id. at 358. Mr. Goodrich further testified
that he ``received most of'' the information regarding the requirements
for a valid prescription from DEA during a July 2006 meeting (which
will be described more fully below). Id. at 357.
Mr. Goodrich also attempted to visit Bi-Wise, but found that it was
closed. Tr. 321; GX 19. According to his report, Bi-Wise was a retail
and closed-door pharmacy with minimal prescription volume. GX 19. Mr.
Goodrich further described it as a ``[v]ery small retail unit located
in strip mall'' and that the ``[c]ustomer is in [the] process of
determining direction for [the] business.'' Id.
Mr. Goodrich testified that he did not attempt to go back to the
pharmacy when it was open, Tr. 322, and never contacted anyone from Bi-
Wise to further inquire into the nature of its business. Id. at 323.
Furthermore,
[[Page 36492]]
notwithstanding that Bi-Wise's purchases of hydrocodone from Respondent
increased from 18,240 dosage units in February 2006 to 152,750 dosage
units in March 2006, Mr. Goodrich never followed up with anyone at Bi-
Wise to determine the reason for the increase. Id. at 325-26. This was
so, Mr. Goodrich testified, because he did not ``routinely look[] at''
the data regarding the purchases of Respondent's customers. Id. at 326.
As found above, during the ensuing months, Respondent took on
additional internet pharmacies as customers and Respondent proceeded to
sell extraordinary quantities of hydrocodone to them. Other than the
five pharmacies visited on or about February 8, 2006, there is no
evidence that Mr. Goodrich visited any of the other internet pharmacies
which Respondent began supplying.
Because of the large quantities of hydrocodone that Respondent was
distributing to these entities, Respondent ``was invited to the DEA
Field Office in Riverside to be educated on the [Agency's] view of
Internet pharmacies.'' ALJ at 22 (FOF 72). On July 17, 2006, Michael
Mapes, Chief of the Office of Diversion Control's E-Commerce Section,
conducted a conference call with Mr. Goodrich and Ms. Grace Gonzales,
Respondent's operations manager \6\ to discuss various issues related
to the dispensing of controlled substances by internet pharmacies. GX
49. Prior to the conference call, Mr. Goodrich was provided with a
document entitled ``Internet Diversion of Controlled Pharmaceuticals.''
Tr. 411-12; GX 45. Included in the document was a table which showed
the average sales by McKesson, another distributor, to seven internet
pharmacies during the month of October 2005. See GX 45, at 7. Six of
the seven pharmacies listed were Respondent's customers: Avee,
Medipharm, Accumed, United, Universal, and Bi-Wise. Id. The table
included a notation that the ``Average Sales by McKesson to Each
Targeted Pharmacy'' was ``311,057 dosage units.'' Id. (emphasis added).
It further indicated that McKesson's average sales of hydrocodone ``to
other customers'' was ``2,413 dosage units.'' \7\ Id. The document also
included a page labeled ``The Internet Pharmacies'' which included
photographs of both Avee and Medipharm. Id. at 9.
---------------------------------------------------------------------------
\6\ Additional DEA personnel were on the call including Group
Supervisor (GS) Lisa Young and Diversion Investigator (DI) Cynthia
Hooks of the DEA Riverside Office. GX 49.
\7\ The document also included the data (discussed earlier)
regarding the average hydrocodone purchases over a four month period
of pharmacies in Florida and nationwide, as well as the average
purchases by the ``Targeted Internet Pharmacies.'' GX 45, at 8.
---------------------------------------------------------------------------
At the time of the conference call, Mr. Goodrich was provided with
an additional package of materials which included a powerpoint
presentation, two Supreme Court decisions,\8\ two agency final orders
revoking the registrations of internet pharmacies for dispensing
prescriptions that were not issued in the course of valid physician-
patient relationships,\9\ DEA's April 2001 Guidance Document on
``Dispensing and Purchasing Controlled Substances over the Internet,''
\10\ and a copy of 21 CFR 1301.74, which sets forth the requirements
pertaining to suspicious orders. See Gov. Ex. 61. The materials also
contained a document from the National Association of Boards of
Pharmacy entitled ``Verified Internet Pharmacy Practice Sites (VIPPS
[supreg]) Most Frequently Asked Questions,'' the American Medical
Association's ``Guidance for Physicians on Internet Prescribing,'' the
Federation of State Medical Boards' ``Model Guidelines for the
Appropriate Use of the Internet in Medical Practice,'' and a list of
suggested questions for determining the legitimacy of internet
pharmacies. See id. Finally, DEA provided Mr. Goodrich with a copy of
21 U.S.C. 823. Id.
---------------------------------------------------------------------------
\8\ Direct Sales Co., Inc. v. United States, 319 U.S. 703
(1943); United States v. Moore, 423 U.S. 122 (1975).
\9\ EZRX, LLC, 69 FR 63178 (2004); RX Network of South Florida,
LLC, 69 FR 62093 (2004).
\10\ Published at 66 FR 21181 (2001).
---------------------------------------------------------------------------
During the conference call, Mr. Mapes specifically discussed the
activities of Medipharm, Avee, Accumed, United, Bi-Wise and Universal
in distributing controlled substances ``through the internet'' and
reviewed the various slides from the Power Point presentation. Tr. at
30-31. Mr. Mapes also discussed various issues that Respondent should
consider in assessing the legitimacy of its customers including the
size and frequency of a pharmacy's orders, the range of products
ordered by the pharmacy, the percent of controlled substances versus
non-controlled drugs ordered, and the locations of/type of facility
used by the pharmacies. Id. at 36-38. More specifically, Mr. Mapes
advised that eighty percent of U.S. ``pharmacies * * * are buying less
than 5,000 dosages of hydrocodone in a month's time,'' and that ``in a
typical retail pharmacy,'' controlled substances might amount to
between five and twenty percent of the pharmacy's purchases'' with the
other eighty to ninety percent of its purchases being non-controlled
drugs. Id. at 37. Mr. Mapes also advised Respondent that as a
distributor it was required to maintain effective controls against
diversion. Id. at 39-40.
Mr. Mapes later discussed with Mr. Goodrich and Ms. Gonzales the
requirement under Federal Law that for a prescription to be valid, it
must be issued in the usual course of medical practice, and ``that an
internet questionnaire alone is not sufficient to legally prescribe
controlled substances.'' Id. at 42-43; see also 21 CFR 1306.04(a). Mr.
Mapes also discussed the factors that are necessary to establish a
bonafide doctor-patient relationship. These include that a patient has
a medical complaint, that a history be taken of the patient, that a
physical exam be conducted, and that there be a nexus between the
complaint, the history, the exam and the drug being prescribed. Id. at
42-43, 45-46; GX 61, at 13.
Mr. Mapes also provided Mr. Goodrich and Ms. Gonzales with several
examples of illegal internet pharmacies. Tr. at 48-49. In one of the
examples, which involved a Florida pharmacy, the pharmacy's purchases
of phentermine had doubled in a five month period from approximately
200,000 to 400,000 units and ``one hundred percent of the drugs
purchased by [the] pharmacy were controlled substances.'' GX 61, at 10;
Tr. 49. In another example, the pharmacy was located in an industrial
warehouse and sold only hydrocodone and alprazolam (a schedule IV
controlled substance), which it purchased in large quantities. Tr. 49;
GX 61, at 11. In the final example, the pharmacy had advised the
distributor that they were doing business over the Internet. Tr. 50.
The pharmacy did not, however, have a VIPPS certification, made
frequent large purchases of hydrocodone and various benzodiazepines,
and ninety-nine percent of the drugs it ordered were controlled
substances. Id.; GX 61, at 12.
Mr. Mapes informed Mr. Goodrich and Ms. Gonzales that ``a pattern
of drugs being distributed to pharmacies [which] are diverting
controlled substances demonstrates a lack of effective controls against
diversion by the distributor'' and could lead to the revocation of the
distributor's registration. Tr. 51. Mr. Mapes further advised ``that
any distributor who was selling controlled substances that are being
dispensed outside the course of professional practice must stop that
distribution immediately.'' Id.
Mr. Mapes also discussed with Respondent's representatives whether
it could ship an order which it had reported as suspicious. Id. at 57.
Mr.
[[Page 36493]]
Mapes advised that even if Respondent reported the order, the company
still had to make the decision as to whether to ship the order. Id. at
57-58; GX 61, at 9. Moreover, Respondent's personnel asked DEA whether
it should stop shipping controlled substances to the internet
pharmacies. Tr. 79, 119-20, 342-43. DEA personnel told Mr. Goodrich and
Ms. Gonzales that it cannot tell a distributor whether a particular
order is legitimate or not, GX 61, at 9; and that whether to ship was
``a business decision,'' Tr. 79; but that Respondent ``had an
obligation to ensure that the products [it] distributed were used for
legitimate medical purposes.'' Id. 343.
Following the meeting, Respondent continued to distribute large
quantities of hydrocodone to numerous internet pharmacies including the
six pharmacies that DEA officials specifically referred to as
``targeted.'' For instance, in August 2006, Respondent distributed ``in
excess of 1.2 million'' dosage units of hydrocodone to Accumed. Id. at
341.
Mr. Goodrich cited several reasons to justify Respondent's decision
to continue shipping hydrocodone to Accumed. First, he stated that DEA
``did not instruct us to cease shipments'' and thus Respondent did not
``have distinct direction.'' Id. at 343-44. Second, Mr. Goodrich
asserted that Respondent was conducting due diligence. Id. at 343.
Third, Mr. Goodrich did not believe that Accumed was acting illegally.
Id. at 345.
In August 2006, Respondent also shipped large quantities of
hydrocodone to the other internet pharmacies which DEA officials had
referred to as ``targeted.'' It shipped 1,246,560 dosage units to
Medipharm, 506,340 units to Avee, 185,940 units to Bi-Wise, and 399,070
units to Universal. Respondent also shipped large quantities to other
entities which it had identified as internet pharmacies. See Resp. Ex.
52.
Moreover, Respondent continued to make large shipments of
hydrocodone to many of these pharmacies until either its registration
was immediately suspended or the pharmacies' registrations were
suspended. For example, it shipped Medipharm 1.45 million dosage units
in September 2006 and just over 1 million dosage units in October 2006;
it shipped Accumed 1.56 million dosage units in November 2006; it
shipped Avee 2.11 million dosage units in November 2006; and it shipped
Discount over 500,000 dosage units in both October and November 2006.
Following the July 2006 conference call, Respondent did undertake
additional measures to investigate the business activities of the
pharmacies it had identified as filling prescriptions issued through
the internet. On July 31, 2006, Mr. Goodrich wrote the Executive
Director of the Florida State Board of Pharmacy identifying nineteen
pharmacies located in the Tampa Bay area which, as a result of the DEA
conference call and ``additional research'' conducted by Respondent,
had led it to ``question whether or not these pharmacies are operating
legitimately.'' Resp. Ex. 49, at 1-2. Respondent thus requested that
the Florida Board ``provide additional information to enable us to
qualify the legitimacy of these customers.'' Id. at 2.
By letter dated August 14, 2006, the Executive Director of the
Florida Board responded. Resp. Ex. 50. In the letter, the Executive
Director wrote that ``[t]he Board of Pharmacy can verify for you that
these particular pharmacies do have active community pharmacy licenses
in the state of Florida. Id. The Executive Director further advised
that ``only one of these licenses [sic] has been disciplined by the
Florida Board,'' that pharmacy being Avee, and enclosed a copy of the
Board's final order pertaining to it.\11\ Id. The letter, however,
offered no specific information regarding the legitimacy of the various
pharmacies' activities. See id.
---------------------------------------------------------------------------
\11\ According to the materials, Avee was sanctioned because it
shipped hydrocodone to a person in Tennessee when it did not hold a
Tennessee license authorizing it to dispense to residents of that
State. See Resp. Ex. 50. Avee entered into a stipulation with the
State under which it was fined $2,000 and required to pay $719.95 as
costs. See id. Avee did, however, retain its Florida license.
---------------------------------------------------------------------------
On August 15, 2006, Mr. Goodrich sent out a six-page questionnaire
to seventeen of the pharmacies including all of the pharmacies which
DEA had described as ``targeted.'' Resp. Ex. 51. The questionnaire
noted that Respondent was conducting a ``due diligence review of our
business relationship'' which had been prompted by four factors: (1) An
``[e]xtremely high percentage of controlled substance purchases vs. non
controlled substance purchases,'' (2) ``[e]xtremely high volume of
controlled substance dosage units,'' (3) ``[i]dentification of your
operation as an internet pharmacy,'' and (4) ``[i]dentification of your
pharmacy filling prescriptions based on telemedicine.'' Id. The
questionnaire then stated that Respondent ``has a responsibility to
insure [sic] that all medications we distribute are used for legitimate
medical purposes, much in the same way that your pharmacy has an
obligation to ensure that every prescription you fill is a result of a
valid medical examination by an authorized prescriber.'' Id.
The document asked a variety of questions. The first question asked
the pharmacies to indicate the ``overall percentage of controlled
substances filled by [the] pharmacy,'' and to list their other
suppliers. Id. The second question was prefaced with the observation
that ``[t]he volume of controlled substances purchased by your pharmacy
far exceeds the `average' quantity of controlled substances purchased
by pharmacies nationwide.'' Id. at 2. The questionnaire then asked the
pharmacy to ``provide an explanation for the volume of your controlled
substance purchases.'' Id.
The next set of questions began by noting that ``[y]our pharmacy
has been identified as an `internet pharmacy,' '' and that ``both the
FDA and DEA have raised concerns citing the potential for abuse.'' Id.
at 2. The questions then asked the pharmacy to provide the ``percentage
of prescriptions filled by your pharmacy [that] originate from the
Internet,'' to ``list the website identifying your pharmacy,'' to
describe how ``a patient provides prescriptions to your pharmacy,'' and
to indicate how patients pay for their prescriptions. Id. at 2-3.
Later, the questionnaire observed that the ``[u]se of the internet
in a medical practice has raised many issues in regards to the issuance
of a prescription, including, but not limited to, ensuring the validity
of medical examinations, the establishment of a `bona fide' doctor/
patient relationship and the appropriateness of treatment where the
physician is located in a different jurisdiction from the patient's
residence.'' Id. at 4. The questionnaire then asked a series of
questions regarding how the pharmacies performed their ``due diligence
on prescriptions issued by doctors who use the internet in the course
of their medical practice.'' Id. These included asking the pharmacy to
``list the web sites identifying the physicians who most commonly issue
prescriptions filled by your pharmacy,'' whether the pharmacy verified
the physician's state license and DEA registrations, and whether the
pharmacy verified that the physician was ``also authorized to practice
medicine in the state in which the patient is located.'' Id. The
questionnaire also asked whether the pharmacy had a protocol to ensure
that ``prescriptions issued through an internet-assisted encounter
constitute[d] a valid medical exam.'' Id.
Next, the questionnaire observed that ``a preponderance of
prescription orders issued by a physician for the same
[[Page 36494]]
products in the same prescription quantities'' was indicative of
``potential prescription abuse'' and asked the pharmacy to attach its
``policies and procedures that address prescription abuse.'' Id. at 5.
Finally, the questionnaire noted that ``[m]any states have adopted laws
and regulations pertaining to internet prescribing'' that mandate
``direct contact between the doctor and patient and the requisite
physical exam(s).'' Id. The questionnaire thus asked the pharmacy to
``list those states [it had] identified that allow the filling of
prescriptions issued without a face-to-face encounter between the
physician and the patient.'' Id.\12\
---------------------------------------------------------------------------
\12\ In a letter dated August 15, 2006, Mr. Goodrich transmitted
a copy of the questionnaire to the DEA Diversion Group Supervisor
and advised that he had requested that the pharmacies respond ``by
the end of the month.'' Resp. Ex. 52. Mr. Goodrich further wrote
that ``[i]f we do not receive a response, we will cease business
with that particular company.'' Id.
---------------------------------------------------------------------------
Upon receiving the questionnaires, which Respondent sent by
certified mail, the pharmacies responded in a variety of ways. Some,
such as Bi-Wise, did not respond at all. See Resp. Ex. 58. Others, such
as CRJ and YPM, failed to answer questions or indicated ``N/A.'' See
Resp. Ex. 59 & 71. Others such as Accumed completed the questionnaire
maintaining that they were not internet pharmacies, indicated ``N/A''
when asked to list the websites of the physicians who wrote the
prescriptions they filled, and answered affirmatively that they had a
protocol to ensure that the prescriptions were issued pursuant to a
valid medical exam. Resp. Ex. 54. Likewise, Duane's stated that zero
percent of the prescriptions it filled originated on the internet, that
it had retained counsel to implement a strict compliance program to
ensure that the prescriptions it filled were valid, and indicated ``N/
A'' where asked to list the websites of the physicians who were
commonly issuing the prescriptions that it filled. Res. Ex. 61.
Some of the pharmacies provided information which Respondent deemed
adequate but which clearly suggested that the prescriptions were
illegal. For example, Respondent deemed Grand Pharmacy's response
adequate. See ALJ at 24 (FOF 81). Yet in a letter, Grand's owner/
president indicated that ``[a]ll doctors Grand deal with require a
current physical done in a physician's presence. All doctors Grand deal
with have a physical or extended phone dialogue with the patient to
establish the diagnosis and need for the medication.'' Resp. Ex. 63, at
2 (emphasis added). It is noteworthy that Grand's response did not say
that the physical was performed by the prescribing physician, what
constituted a ``current physical,'' or that the doctors prescribing on
the basis of a telephone call were the same doctors that had performed
the physical exam. Notwithstanding the suspicious nature of the
information, Mr. Goodrich deemed the answers satisfactory and did not
inquire further, see Resp. Ex. 64; Respondent continued to ship large
quantities of hydrocodone to Grand.
The questionnaires completed by the Medicine Shoppe and Medicom,
which apparently were owned by the same person, were of similar nature.
For example, while the Medicine Shoppe's questionnaire indicated that
it was ``not an internet pharmacy,'' and that only one to two percent
of the prescriptions it filled originated on the internet, it also
indicated the name of a website used by the ``physicians who most
commonly issue prescriptions filled by [the] pharmacy.'' Resp. Ex. 65,
at 2-4. Furthermore, in answer to the question of whether the pharmacy
verified that the physicians were ``authorized to practice medicine in
the state [where] the patient is located,'' the Medicine Shoppe stated:
``No. The doctor[s] makes the consult from [the] state in which they
are licensed.'' Id. at 4.
The Medicom questionnaire indicated that ``[w]e are not [an]
internet pharmacy; I receive Rx from doctors who have spoken [to]
patients, discussed therapy, and also reviewed entire medical
history.'' Resp. Ex. 66, at 2. The questionnaire also indicated that it
received prescriptions ``via telemedicine,'' and included the names of
three websites used by physicians whose prescriptions the pharmacy was
filling. Id. at 3-4. Furthermore, when asked whether the pharmacy
verified that the physicians were ``authorized to practice medicine in
the state in which the patient is located,'' Medicom likewise stated:
``No. The doctor makes the consultation from the state they are
licensed'' in.\13\ Id. at 4.
---------------------------------------------------------------------------
\13\ Both the Medicine Shoppe and Medicom included logs showing
that the pharmacies had reviewed medical records pertaining to
internet prescriptions and a form letter the pharmacy represented as
sending to the physicians and which the physicians were supposedly
required to sign and return to the pharmacies. See, e.g., Resp. Ex.
66. The record does not establish whether these two pharmacies
actually sent the letter and whether the physicians signed it.
---------------------------------------------------------------------------
Mr. Goodrich deemed both the Medicine Shoppe and Medicom's
responses to be adequate. ALJ at 24-25 (FOFs 82 & 83). Notwithstanding
the suspicious nature of their responses, Respondent continued to ship
large quantities of hydrocodone to both pharmacies.
The Medipharm and Universal questionnaires were prepared by the
same attorney, who had previously served as an Assistant State
Attorney. See Resp. Exs. 67 & 69. Both questionnaires indicated that
the pharmacies were ``not an `internet pharmacy,' '' and that zero
percent of the prescriptions originated on the internet. Resp. Exs. 67
at 2, 69 at 2. Both questionnaires indicated ``N/A'' where asked to
``list the websites identifying the physicians who most commonly issue
prescriptions filled by your pharmacy.'' Resp. Exs. 67 at 4, 69 at 4.
Moreover, both questionnaires indicated that the pharmacies had
``retained counsel to prepare and implement a strict compliance program
to ensure compliance with the applicable rules and regulations for
prescription practice in each of the states in which [the pharmacy] is
licensed and transacts business.'' Id. The questionnaires also
indicated that the pharmacies ``routinely verif[ied]'' that the doctors
were ``authorized to practice medicine in the state in which the
patient is located.'' Id. Finally, both pharmacies stated that they did
``not fill prescriptions where the patient has not had a face-to-face
encounter with a physician.'' \14\ Resp. Ex. 67, at 5; Resp. 69, at 5.
---------------------------------------------------------------------------
\14\ On November 2, 2006, the DEA Riverside Group Supervisor met
with Mr. Goodrich at Respondent's facility to discuss Respondent's
criteria and procedures for determining whether to ship to internet
pharmacies. Tr. 102-03. During the meeting, Medipharm was
specifically discussed. Id. at 104. According to the testimony of
the Group Supervisor, Mr. Goodrich stated that ``Medipharm * * * had
a comprehensive compliance program, and * * * he ha[d] determined
that they were innocent until proven guilty.'' Id.; see also ALJ at
29 (FOF 98).
---------------------------------------------------------------------------
United's questionnaire, which was submitted more than five weeks
after Respondent's deadline, stated that it was ``not an internet
pharmacy'' and that ``[r]egulations regarding physicians requiring a
face-to-face consultation is an issue of compliance for the physician
and the relevant medical board.'' Resp. Ex. 70. With respect to whether
United verified that the physicians were authorized to practice
medicine in the States where their patients were located, the pharmacy
gave the non-responsive answer that ``We are advised by the prescribing
physician that they are authorized to practice medicine for their
patients.'' Id. Finally, in answering the question as to whether United
had a protocol to ensure that the prescriptions were issued pursuant to
a valid medical exam, the pharmacy stated: ``United has a policy,
through a signed affidavit, as well as providing us with recent medical
history for the patient file, that
[[Page 36495]]
the physician meets the standards noted. However, that being the case,
we are not required [to determine] whether or not the physician has an
internet or in-office encounter with his patient.'' Id. United further
stated that it was ``not aware that it is a commonly accepted practice
in the pharmacy industry, that the pharmacy verify the type of
consultation a physician has with a patient.'' Id.
United also included a December 2005 report by Mudri Associates
regarding the pharmacy's compliance with the CSA.\15\ The report
specifically noted that ``[a] doctor expecting to have his
prescriptions filled by [United] can anticipate having to complete an
extensive background questionnaire. This background consists of samples
of writing along with a signed acknowledgement pertaining to a
notification of [United's] adherence to fulfilling their corresponding
responsibilities with the physician.'' Id. According to the report:
---------------------------------------------------------------------------
\15\ According to the stipulated facts, Mr. Mudri is a retired
DEA Diversion Investigator.
---------------------------------------------------------------------------
The physician is contacted and asked to acknowledge that there
[sic] practice subscribes to sound medical judgment criteria, such as
valid patient medical complaints, extensive physician interview and
consultation, in-person patient examination, or supervision and/or
direction of an examination by a consulting medical professional,
documented in a patient file, along with the appropriateness of
medications based upon this physician/patient relationship.
Id. Respondent deemed United's response adequate. ALJ at 25 (FOF 84).
Avee submitted its questionnaire nearly a month late. Resp. Ex. 55.
Avee admitted that controlled substances comprised ninety percent of
the prescriptions it filled and answered ``N/A'' to the question ``What
percentage of prescriptions filled by your pharmacy originate on the
internet.'' Id. at 1-2. Avee further maintained that it was not an
internet pharmacy but rather a ``mail order pharmacy,'' and that it did
not know what percentage of the physicians whose prescriptions it
filled used the internet in the course of their medical practice. Id.
at 3-4. Where asked to identify the websites of the physicians who were
``most commonly issu[ing the] prescriptions filled by your pharmacy,''
Avee wrote ``N/A.'' Id. at 4. Where asked if it verified that the
prescribing physician was ``authorized to practice medicine in the
state in which the patient is located,'' Avee wrote: ``where the doctor
is located.'' Id.
Upon reviewing Avee's questionnaire, Mr. Goodrich wrote back to it
noting that he ``was surprised that your responses to our questionnaire
did not support the observations I made on site,'' and added that he
was ``curious if your business model has changed in the past six
months.'' Resp. Ex. 56. Mr. Goodrich further noted that he was ``unable
to reconcile the information provided on our questionnaire with the
information observed during a visit to [its] facility.'' Id. Mr.
Goodrich then indicated that he wished to visit Avee again and
requested that it provide ``a current overview of [its] internal due
diligence protocols.'' Id.
In an undated letter, Avee outlined its compliance procedures and
provided Mr. Goodrich with a copy of a letter regarding prescribing
practices which it claimed it sent to the physicians whose
prescriptions it filled. Resp. Ex. 57. Avee maintained that it required
that this letter be signed annually by the physician and that it also
conducted site visits at the physician's offices. Id. at 2. In its
letter to the physicians, Avee listed the four elements of a legitimate
doctor/patient relationship. Id. at 5.
While the pharmacy accurately stated the four elements, the letter
further added that ``[t]o these, Avee would add an opportunity for the
prescribing practitioner and patient, via some means, to confer.'' Id.
(emphasis added). Avee further maintained that ``[i]t is not a
requirement that the prescribing physician himself/herself took the
history or performed the physical examination, as long as the
prescribing practitioner had full and meaningful access to the medical
history and physical examination, and an opportunity to confer with the
patient.'' Id. (emphasis added).
Avee's letter to its physicians clearly raised a substantial
question as to the legality of the prescriptions it was filling and
conflicted with information that DEA had previously provided Respondent
regarding the requirements to establish a legitimate doctor-patient
relationship. Indeed, it indicated that Avee's practices remained the
same as Mr. Goodrich had observed during his February 2006 visit when
he noted that the pharmacy filled ``prescriptions from various sources,
including internet-connected medical providers who provide patient
assessments and diagnosis through unconventional practice models.'' GX.
20 (emphasis added). Here again, Respondent continued to ship large
quantities of controlled substances to Avee and did so up until
December 6, 2006, when the immediate suspension order was served.
As a result of the surveys, Respondent stopped shipping controlled
substances to Bi-Wise, CRJ and YPM. ALJ at 25 (FOF 86). Even then,
however, Respondent did not stop accepting orders from these entities
until October 20, 2006, and did not stop shipping to them until October
27, 2006, nearly two months after the completed questionnaires were
due. Id.; see also Gov. Ex. 36 (memorandum dated December 20, 2006,
from Respondent's counsel to DEA attorney regarding discontinued
pharmacy customers); Resp. Ex. 52 (questionnaire at p.6).
Moreover, Respondent's own evidence indicates that it never sent a
questionnaire to Discount Mail Meds (a/k/a Liddy's), see Resp. Ex. 52,
at 2, and there is no completed questionnaire from it. See Resp. Exs.
51-72. Respondent, however, continued to sell large quantities of
hydrocodone to Discount and sold it more than 500,000 dosage units a
month in both October and November 2006.
Finally, there is no evidence that Respondent ever received a
completed questionnaire from Medcenter and Medichem. See Resp. Exs. 54-
72; ALJ at 24-25 (Stipulated FOFs 77-86). Respondent nonetheless
continued to supply Medcenter with large quantities until November 16,
2006, when the latter's registration was immediately suspended. It also
continued to supply Medichem with large quantities of hydrocodone
through November 2006.
Respondent also adopted a policy under which it would, effective on
December 15, 2006, cease distributing controlled substances to those
pharmacies whose DEA registrations had not been automatically renewed
but were continued on a day-to-day basis for a period of more than two
months. Accordingly, on November 17, 2006, Mr. Goodrich wrote Avee,
United, and Universal, notifying them of the policy and its effective
date. See Resp. Exs. 77, 78, 79. Between the date of this letter and
December 5, 2006 (the day before service of the Immediate Suspension),
Respondent supplied Avee with more than 1.8 million dosage units of
hydrocodone. ALJ at 7 (FOF 21). Moreover, between the date of its
letter and November 30, 2006, Respondent supplied Universal with
150,210 dosage units. ALJ at 10 (FOF 31). Finally, from November 21,
2006 through December 5, 2006, Respondent supplied United with 158,280
dosage units of hydrocodone. ALJ at 14 (FOF 45).\16\
---------------------------------------------------------------------------
\16\ The parties also stipulated that between January and May
2006, Respondent stopped accepting orders from seven other
pharmacies based on ``the cessation of their'' registrations by DEA.
ALJ at 25 (FOF 86).
---------------------------------------------------------------------------
[[Page 36496]]
As a result of the surveys, in October 2006, Respondent updated its
customer profile questionnaire for potential pharmacy customers. Id. at
26 (FOF 88). On this questionnaire, Respondent required potential
customers to disclose information related to the prescriptions the
pharmacy was dispensing including whether ``they [were] the result of
an internet- or telephone-based medical encounter.'' Resp. Ex. 75.
Respondent also required the pharmacy's responsible officer to attest
to the validity of the information it provided. Id.
Relatedly, in October 2006, Respondent revised its standard
operating procedures (SOP) pertaining to the sale of controlled
substances to pharmacy customers. ALJ 26 (FOF 88). The SOP adopted the
requirement that Respondent's pharmacy customers certify whether they
knowingly filled prescriptions that arose out of an internet or
telephone-based medical encounter. Resp. Ex. 76. It also directed that
``[i]f [a] pharmacy affirms that they fill prescriptions of this
nature, they will be required to provide details of the compliance
program they have adopted to ensure that these prescriptions are legal
and valid.'' Id. The SOP further noted that ``[c]ustomers with
significant purchases of controlled substances, significant activity in
mail-order dispensing or with significant amounts of telemedicine
dispensing will be subject to on-site assessments within four months
after being accepted as a customer.'' Id. at 2.
Respondent's Failure to Report Suspicious Orders
Under federal regulations, a registrant must ``design and operate a
system to disclose to the registrant suspicious orders of controlled
substances''; suspicious orders must be reported to the local Field
Division Office upon discovery by the registrant. 21 CFR 1301.74(b).
Under the regulation, ``[s]uspicious orders include orders of unusual
size, orders deviating substantially from a normal pattern, and orders
of unusual frequency.'' Id.\17\
---------------------------------------------------------------------------
\17\ The parties also stipulated that every month since July
2002, Respondent had submitted ARCOS reports regarding its
distributions of schedule III controlled substances including
hydrocodone to the ARCOS Unit at DEA headquarters. ALJ at 18 (FOF
58)
---------------------------------------------------------------------------
While the record establishes that Respondent had worked with a DEA
DI to develop a system for detecting and reporting suspicious orders,
ALJ at 20 (FOF 64), the system had been created when most of
Respondent's customer base was comprised of physicians. Tr. 739.
Moreover, no one from Respondent contacted the DI to discuss its
decision to supply internet pharmacies and the criteria and procedures
that should be used to determine whether the pharmacies' orders were
suspicious. Id. at 741.
Under Respondent's procedures, a monthly report was generated which
identified those customers purchasing controlled substances and the
percentage of controlled versus non-controlled drugs purchased by the
customer. Resp. Ex. 109, ] 25.2. If a customer's monthly purchases of
controlled substances deviated by ``over 150%'' from the customer's
average monthly percentage of controlled substance purchases for the
preceding six months, it was then subject to further review. Id. at ]
25.3.
Under Respondent's system, ``[i]f no customers [were] deemed
suspicious,'' it would send DEA ``a report stating `no suspicious
activity' for the period.'' Id. at ] 25.6. Moreover, twice a year,
Respondent sent to DEA ``a list of the largest purchasers of controlled
substances.'' Id. at ] 25.8. The customers on this list were not
``reported as having suspicious purchases.'' Id. According to Mr.
Goodrich's testimony, Respondent did not have a procedure in place to
monitor and detect excessive purchases on a monthly basis. Tr. 397-98.
Respondent sent DEA e-mails reporting that it had ``no suspicious
activity to report'' for the months of December 2005 (GX 9), January
2006 (GX 10), March 2006 (GX 11), and April 2006 (GX 12). In addition
to the exhibits, testimony establishes that ``Respondent did not report
any suspicious orders through the month of December 2006,'' ALJ at 36
(FOF 129, citing Tr. 95-96), even though the Florida internet
pharmacies were purchasing quantities that greatly exceeded the average
amount of hydrocodone (6,000 dosage units per month) purchased by a
traditional brick-and-mortar retail pharmacy. GX 45, at 8; Tr. 608.
Respondent, however, twice provided the DEA Riverside Field Office
with a report listing its top purchasers of controlled substances. See
Resp. Ex. 46, 47, & 48. The first of these, which Mr. Goodrich e-mailed
to the DEA Riverside office on February 13, 2006, covered the period
June through December 2005. See Resp. Ex. 46. The report included Avee,
Medipharm and Accumed, indicated the date the pharmacies had become
customers,\18\ the number of bottles of controlled substances the
pharmacies had ordered, and the percentage of prescription drugs
ordered by the pharmacies that were controlled substances. See id.
---------------------------------------------------------------------------
\18\ According to the document, Medipharm had become a customer
on December 7, 2005; Accumed and Avee became customers on December
19, 2005, and December 21, 2005, respectively. See Resp. Ex. 46.
---------------------------------------------------------------------------
Mr. Goodrich provided the second report to DEA at the July 17, 2006
conference call. ALJ at 23 (FOF 72). This report covered the period
December 2005 through June 2006, and included Medipharm, Accumed, Avee,
United, Medichem, Bi-Wise, Medicom, Discount, Universal, Medcenter,
CRJ, and Woody Pharmacy. See Resp. Ex. 47. The report likewise listed
the date the pharmacies had become customers, the total amount of
controlled substances ordered, and the percentage of prescription drugs
ordered that were controlled substances. See id. Of the aforementioned
pharmacies, the lowest percentage of controlled substances ordered was
ninety-eight percent by CRJ. See id. Almost all of the above pharmacies
had ordered only controlled substances. See id. Finally, the list did
not include several of Respondent's recently acquired customers
including Grand Pharmacy and the Medicine Shoppe. See id.
At the hearing, Mr. Goodrich acknowledged that ``an unusual
quantity could be a determining factor'' in deciding whether an order
must be reported as suspicious. Tr. 490. Mr. Goodrich further admitted
that some of the orders received by Respondent were of an unusual size.
Id. Moreover, Mr. Goodrich further testified that following the July
17, 2006 conference call with DEA, Respondent did not report any of the
orders placed by the Florida-based pharmacies to be suspicious because
``[w]e considered [all of the pharmacies] suspicious at that point.''
Tr. 424.
On cross-examination, Mr. Robert Schwartz, who became Respondent's
Chief Operating Officer on September 26, 2006, was asked a series of
hypothetical questions based on the evidence in the case regarding the
reporting of suspicious orders. Tr. 953-57. Mr. Schwartz testified that
while he had previously worked in senior management positions at major
pharmaceutical distributors such as H.D. Smith and Barnes Wholesale, he
could not recall a pharmacy ordering 800,000 dosage units of
hydrocodone in a month. Id. at 953. Mr. Schwartz also testified that an
order for 2.1 million dosage units of the drug was ``a lot of
hydrocodone'' and should be reported as suspicious because, based on
his experience at Barnes, it was not
[[Page 36497]]
consistent with what pharmacies ordered. Id. at 953-54. Similarly, Mr.
Schwartz admitted that various changes in a pharmacy's ordering history
(such as those which occurred here) would be suspicious and should be
reported to DEA. Id. at 954-57.
The ALJ further found that Mr. Schwartz ``provided credible
testimony concerning two possible justifications for the Respondent's
sharp rise in the sale of hydrocodone products in August of 2006.'' ALJ
at 38 (FOF 135 (citing Tr. 930)). The first reason given was that there
are ``year-end inventory shortages'' from the manufacturers and thus
``wholesalers begin `to buy extra product from manufacturers in August,
building up our inventories for the year-end,'' and pharmacies ``buy
extra inventory at this time.'' Id. The second reason was the State of
Florida's implementation of its requirement, effective July 1, 2006,
that ``pedigree must be passed by each distributor who is not a
manufacturer, before each distribution of a drug and provided to each
person who receives the drug.'' ALJ at 38-39 (FOF 137). Respondent met
the pedigree requirements, and the developer of the software it used
issued a press release announcing that Respondent was compliant with
Florida law. See id.; Resp. Ex. 105.
Respondent, however, introduced no evidence that it contacted any
of its pharmacy customers that increased their purchases between July
and August 2006 to determine if they had done so for either reason. Tr.
487. As Mr. Goodrich testified, he did not ``know that the pedigree
program had a direct impact on the hydrocodone that we distributed to
our pharmacy customers.'' Id. at 488. In fact, only seven of the
pharmacies increased their purchases of hydrocodone from July to August
2006. During this period, four of the pharmacies actually decreased
their hydrocodone purchases from Respondent and the remaining three
purchased roughly the same amount. Relatedly, Mr. Goodrich admitted
that Respondent did not even ``develop a [suspicious orders] policy
that specifically addressed the pharmacy customers until September of
2006.'' ALJ at 34 (FOF 119).
Furthermore, the orders of the Florida-based internet pharmacies
were suspicious from the beginning because of their large size, their
frequency, and the fact that controlled substances constituted the
overwhelming percentage (and frequently 100 percent) of the products
being purchased. See ALJ at 36-37 (FOF 130-132); see also Resp. Exs. 46
& 47. Even if Respondent had contacted the seven pharmacies and
determined that they had increased their orders for either of the above
reasons, their orders were still suspicious and subject to reporting.
And as Mr. Goodrich testified, following the July 17, 2006 conference,
he considered all of the Florida-based pharmacies to be suspicious. Tr.
424.
Respondent's Corrective Actions and Post-Suspension Conduct
The ALJ also made several findings regarding corrective actions
instituted by Respondent. First, the ALJ found credible the testimony
of Mr. Schwartz that on December 5, 2006, the day before the immediate
suspension order was served on Respondent, he and its owner, Mr. John
Sempre, had determined that it should stop supplying the Florida-based
internet pharmacies. ALJ at 40 (citing Tr. 938-39).
Mr. Schwartz also testified that if Respondent regained its
registration, he and not Mr. Goodrich, would be responsible for
reviewing suspicious order reports before they were submitted to DEA.
Tr. 1027. Moreover, Mr. Schwartz was to ``have ultimate authority'' to
accept or reject any new customer seeking to purchase controlled
substances. ALJ at 41 (citing Tr. 1027). Finally, Respondent entered
into an agreement with SynTegra, L.L.C., to review its procedures for
monitoring and reporting suspicious orders to DEA. Resp. Ex. 102.
After the immediate suspension of its registration, Respondent
continued to receive orders for controlled substances which it
forwarded on to Pharmapac, a competitor, for filling. Tr. 184-87, GX
63. Under the ``Sold To'' line on the Pharmapac invoices, typically the
name of the individual practitioner who ordered the controlled
substances was listed above Respondent's name and address. See GX 63,
at 281-351. However, on the invoices ``Ship To'' line, the invoices
contained the individual practitioner's name and address. See id. The
invoices also included a label which stated: ``Please send payment to:
SOUTHWOOD PHARMACEUTICALS, INC., 60 Empire Drive, Lake Forest, CA
92630.'' See id.
On February 1, 2007, Respondent Mr. Schwartz wrote a letter to
Respondent's customers indicating that it had ``mistakenly placed a
sticker on these invoices directing payment to Southwood
Pharmaceuticals.'' Resp. Ex. 107. The letter instructed Respondent's
customers that the sticker be disregarded and that payment should be
made directly to Pharmapac at its address. Id.
The ALJ found that ``Respondent processed an extensive number of
orders for controlled substances in January of 2007,'' and that
``Respondent did receive payment from many of these customers
consistent with the invoices dated during January of 2007.'' ALJ at 44
(FOF 157) (citing GX 63). During the hearing, however, the parties
stipulated that ``[i]t was not [Respondent's] intent to retain any
payment submitted to or through Southwood by [its] customers, in
connection with orders forwarded to and filled by Pharmapac.'' Tr.
1030. Moreover, the Government introduced no evidence establishing that
Pharmapac is not registered with DEA to manufacture or distribute
controlled substances.
Discussion
Section 304(a) of the Controlled Substances Act provides that ``[a]
registration * * * to manufacture, distribute, or dispense a controlled
substance or a list I chemical may be suspended or revoked by the
Attorney General upon a finding that the registrant * * * has committed
such acts as would render [its] registration under section 823 * * *
inconsistent with the public interest as determined under such
section.'' 21 U.S.C. 824(a)(4). As relevant here, Congress directed
that the following factors be considered:
(1) Maintenance of effective controls against diversion of
particular controlled substances and any controlled substance in
schedule III, IV, or V compounded therefrom into other than
legitimate medical, scientific, or industrial channels;
(2) compliance with applicable State and local law;
(3) promotion of technical advances in the art of manufacturing
these substances and the development of new substances;
(4) prior conviction record of applicant under Federal or State
laws relating to the manufacture, distribution, or dispensing of
such substances;
(5) past experience in the manufacture, distribution, and
dispensing of controlled substances, and the existence in the
establishment of effective controls against diversion; and
(6) such other factors as may be relevant to and consistent with
the public health and safety.
21 U.S.C. 823(d). These factors are considered in the disjunctive.
I may rely on any one or a combination of factors and give each factor
the weight I deem appropriate in determining whether to revoke a
registration or to deny a pending application for renewal of a
registration. See Green Acre Farms, Inc., 72 FR 24607, 24608 (2007);
ALRA Laboratories, Inc., 59 FR 50620, 50621 (1994). Moreover, I am
``not required to
[[Page 36498]]
make findings as to all of the factors.'' Hoxie v. DEA, 419 F.3d 477,
482 (6th Cir. 2005); Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir.
2005).
The Government bears the burden of proving that Respondent's
continued registration would be inconsistent with the public interest.
21 CFR 1301.44(e). If, however, the Government establishes a prima
facie case, the burden shifts to Respondent to show why its continued
registration would not be inconsistent with the public interest. See
Gregory D. Owens, 67 FR 50461, 50464 (2002).
In this case, I conclude that factors one, five and six establish
that Respondent's continued registration would ``be inconsistent with
the public interest.'' 21 U.S.C. 823(d). Indeed, Respondent ``concedes
that the Government has established a prima facie case * * * that [its]
continued registration may be inconsistent with the public interest.''
Resp. Proposed Findings of Fact and Conclusions of Law (hereinafter,
Resp. Br.) at 31. Respondent maintains, however, that the record
``encompasses sufficient examples of mitigation and ongoing remediation
by'' it to compel the conclusion that revoking its registration ``would
be inconsistent with the public interest.'' Id. For the reasons set
forth below, I conclude otherwise and will order the revocation of
Respondent's registration and the denial of its pending renewal
application.
Factors One and Five--Maintenance of Effective Controls Against the
Diversion of Controlled Substances Into Other Than Legitimate Channels
and Respondent's Past Experience in Distributing Controlled Substances
Under DEA regulations, all ``registrants shall provide effective
controls and procedures to guard against theft and diversion of
controlled substances.'' 21 CFR 1301.71(a). A registrant is further
required to ``design and operate a system to disclose to the registrant
suspicious orders of controlled substances'' and is required to
``inform the [DEA] Field Division Office * * * in his area of
suspicious orders when discovered by the registrant.'' Id. 1301.74(b).
As explained below, the record establishes that Respondent failed
repeatedly to comply with both requirements.
Respondent's Distributions of Hydrocodone and Due Diligence Efforts
Beginning in December 2005, Respondent distributed massive
quantities of hydrocodone, a highly abused drug and schedule III
controlled substance, to entities which, notwithstanding their various
assertions to Mr. Goodrich, were nothing more than drug pushers
operating under the patina of legitimate authority. Respondent's due
diligence measures `` which initially involved nothing more than
verifying a pharmacy's DEA registration and state license--were wholly
deficient.
As the record demonstrates, Respondent sold Medipharm in excess of
1.75 million units of hydrocodone in the months of December 2005 and
January 2006, before Mr. Goodrich even visited this entity to inquire
into the nature of its business. Likewise, during the months of
December 2005 and January 2006, Respondent sold more than 1.55 million
dosages units of hydrocodone to Avee and 476,000 dosage units of the
drug to Accumed before Mr. Goodrich even visited these entities. It
also sold large quantities of hydrocodone to Medichem and Bi-Wise
before Mr. Goodrich visited them. As Mr. Goodrich admitted, Respondent
had ``no'' process in place to determine the nature of a potential
customer's business before it sold to them.
Moreover, during the February on-site visits with the above
entities, Mr. Goodrich received substantial information which raised
serious doubt as to the legality of their business practices. As the
evidence demonstrates, Mr. Goodrich determined that Medipharm had a
``mail order business [with] ties to internet pharmacy,'' GX 16, that
Accumed had ``ties to the internet,'' GX 17, and that Medichem was
mailing prescriptions out-of-state and had ``some ties to the internet
community.'' GX 18.
At Avee, Mr. Goodrich found that it ``provide[d] mail order
fulfillment of prescriptions from various sources, including internet-
connected medical providers who provide patient assessments and
diagnosis through unconventional practice models,'' with ``[m]any of
these prescriptions [being] connected to pain management therapies
involving the prescription of controlled substances.'' GX 20 (emphasis
added). Avee's management also discussed with Mr. Goodrich a visit
earlier that day by agency investigators and their concern as to ``the
validity of the doctor-patient relationship that formed the basis of
the digital diagnosis that resulted in a prescription for controlled
substances being submitted to Avee for filling.'' Id. (emphasis added).
Moreover, in his testimony, Mr. Goodrich admitted that he knew as early
as his visit to Avee that ``[s]ome of the prescriptions [it] filled
were not the result of physical contact between the doctor and the
patient,'' Tr. 348, and that Avee had also provided him with the names
of two websites that were the source of the prescriptions it filled.
Id. at 351-52.
The evidence further establishes that notwithstanding that he did
not ``know [ ] much about this telemedicine thing,'' id. at 354, Mr.
Goodrich did not order that Respondent's shipments to these pharmacies
be stopped. Indeed, following the visits, Respondent shipped even
larger monthly quantities of hydrocodone to some of the pharmacies.
Furthermore, Mr. Goodrich testified that he did not assess whether Avee
was operating illegally, claiming that he did not think he could ``make
that assessment.'' Tr. 359. Indeed, Respondent remained disinterested
in determining whether the Florida-based pharmacies were lawfully
filling prescriptions until after the July 17, 2006, conference call
with DEA officials.\19\
---------------------------------------------------------------------------
\19\ It is true that Mr. Goodrich testified that he visited the
DEA Diversion Control website in early 2006. However, he testified
that he received most of the information about prescriptions during
the July 2006 conference call. Tr. 357. Neither Mr. Goodrich nor any
other witness for Respondent claimed to have reviewed the DEA April
2001 policy statement on prescribing controlled substances over the
internet prior to it being provided to him by DEA officials.
Moreover, Respondent makes no claim that following the February
visits it consulted legal counsel to determine the legality of the
prescribing practices of the Florida pharmacies.
---------------------------------------------------------------------------
Notwithstanding that Mr. Goodrich had reason to know that the
Florida-based internet pharmacies were not filling lawful
prescriptions, Respondent proceeded to supply large quantities of
hydrocodone to an additional eleven internet pharmacies (most of which
were located in the Tampa Bay area) including United, Medicom,
Discount, Universal, Medcenter, CRJ, Grand, Medicine Shoppe, Duane's,
Woody, and Elite. Moreover, notwithstanding the large quantities that
these pharmacies ordered, Mr. Goodrich apparently did not deem it
necessary to conduct site visits to inquire into the nature of their
businesses and whether they were filling lawful prescriptions. See,
e.g., Resp. Br. at 34-35 (discussing ``steps taken by Mr. Goodrich to
ascertain that [Respondent's] pharmacy customers in Florida were not
diverting controlled substances,'' and noting only Goodrich's Feb. 8,
2006 site visits and the August 2006 pharmacy questionnaires).
Moreover, Respondent continued to supply the pharmacies,
notwithstanding that they were ordering hydrocodone in quantities that
far exceeded what its traditional retail pharmacy customers ordered,
that Respondent had information that controlled substances comprised
between 98 and 100 percent
[[Page 36499]]
of the prescription drugs being ordered by these entities, and that as
Mr. Goodrich explained, these entities ``were a different type of a
customer than what we'd been used to dealing with.'' Tr. 319.
Respondent contends that it is ``unfair'' to compare what Mr.
Goodrich learned during the site visits through his ``lay inquiry''
with what a DEA Diversion Investigator learned, ``armed as she was by
two decades of diversion investigation experience, search warrants, and
a team of armed agents carrying intimidating badges.'' Resp. Br. 35.
The record demonstrates, however, that even without a warrant, a badge
and a gun, Mr. Goodrich was able to obtain from Avee substantial
information indicating that its practices were illegal and already
subject to DEA's scrutiny. He was also able to obtain information from
several other pharmacies which suggested that further inquiry was
warranted as they were engaged in practices similar to those of Avee.
Moreover, Respondent's argument ignores that it sold to numerous
additional internet pharmacies without even conducting site visits.
Furthermore, even after DEA presented information to it--on the
proverbial silver platter--that Respondent's Florida-based internet
pharmacy customers were likely engaged in illegal activity and even
specifically mentioned that six of its customers were ``targeted,''
Respondent continued to distribute extraordinarily large quantities of
hydrocodone to these pharmacies.
To Medipharm, an entity described as a target of an investigation,
in August 2006, Respondent distributed 1.25 million dosage units of
hydrocodone. In September 2006, Respondent distributed to Medipharm
1.45 million dosage units of the drug, and in October 2006, more than 1
million dosage units. Furthermore, Respondent distributed an additional
538,000 dosage units to Medipharm during the first half of November
2006, at which time Medipharm's registration was suspended.
To Accumed, another of the targeted pharmacies, in August 2006,
Respondent sold approximately 1.268 million dosage units of
hydrocodone. While in September and October 2006, Respondent's
hydrocodone sales to Accumed declined to approximately 503,000 and
394,000 dosage units respectively, in November 2006, Respondent sold
1.56 million dosage units to it.
As for Avee, which was also identified as a target, in August 2006,
Respondent sold 506,430 dosage units of hydrocodone, an amount that was
more than five times the previous month's sale. In September 2006,
Respondent sold Avee approximately 696,000 dosage units; in October, it
sold Avee 537,900 dosage units; and in November, it sold Avee 2.11
million dosage units.\20\
---------------------------------------------------------------------------
\20\ Respondent also continued to ship large quantities of
hydrocodone to Universal, another pharmacy which was identified as
``targeted.'' In August, it shipped 399,070 dosage units to
Universal; in September, 340,500 dosage units; in October, 453,690
dosage units; and in November, 330,600 dosage units.
---------------------------------------------------------------------------
It is true that following the July 17, 2006 conference call,
Respondent attempted to perform additional due diligence. More
specifically, Mr. Goodrich requested information from the Florida Board
of Pharmacy as to whether the pharmacies were operating legitimately.
The Florida Board, however, only provided information as to the
licensure status of the pharmacies. Resp. Ex. 50.
On August 15, 2006, Respondent also sent out a questionnaire to its
internet pharmacy customers. It is true that Respondent did eventually
cease shipping controlled substances to three of the pharmacies (Bi-
Wise, CRJ and YPM) because these pharmacies either failed to respond
(Bi-Wise) or gave inadequate responses on their questionnaires (CRJ and
YPM). But even with respect to these pharmacies, Respondent did not cut
off its shipments to them until late October 2006, nearly two months
after its own deadline for completing the questionnaires, and sold them
large quantities of hydrocodone notwithstanding that the pharmacies had
failed to comply with Respondent's request for additional information.
It is also true--as Respondent contends--that two of the pharmacies
(Medipharm and Universal) submitted questionnaires which were
``prepared by an apparently reputable attorney,'' Resp. Br. 35, and
which indicated that the pharmacies had ``retained counsel to * * *
implement a strict compliance program to ensure compliance with the
applicable rules and regulations for prescription practice in each of
the states in which'' the pharmacies did business. Resp. Ex. 67, at 4;
Resp. Ex. 69, at 4. These questionnaires further stated that the
pharmacies ``routinely verif[ied]'' that the doctors were ``authorized
to practice medicine in the state in which the patient is located.''
Resp. Ex. 67, at 4; Resp. Ex. 69, at 4.
These two pharmacies further indicated, however, that they did
``not fill prescriptions where the patient has not had a face-to-face
encounter with a physician.'' Resp. Ex. 67, at 5, Resp. Ex. 69, at 5
(emphasis added). Notably, the latter statement did not say that the
patients had a face-to-face encounter with the prescribing physician.
I need not decide whether it was reasonable for Respondent to
continue shipping controlled substances to Medipharm and Universal in
light of the ambiguous statements they provided and the massive
quantities of controlled substances they were ordering. Even if it was,
Respondent ignores the numerous instances in which it continued to ship
to other pharmacies which had provided ample information casting
serious doubt as to the validity of their activities.\21\
---------------------------------------------------------------------------
\21\ Likewise, the answers submitted by Duane's appeared to be
in order even if they were false.
---------------------------------------------------------------------------
For example, Respondent continued shipping hydrocodone to Grand
Pharmacy deeming its response to be adequate. Yet Grand stated that
``[a]ll doctors Grand deal with have a physical or extended phone
dialogue with the patient to establish the diagnosis and need for the
medication.'' Resp. Ex. 63, at 2 (emphasis added). While this answer
should have stood out like a swollen thumb, Mr. Goodrich deemed Grand's
answers adequate and Respondent continued to ship large quantities of
controlled substances to it.
The Medicine Shoppe's questionnaire indicated the name of a website
used by the ``physicians who most commonly issue prescriptions filled
by [the] pharmacy.'' Resp. Ex. 65, at 4. Moreover, the pharmacy
answered the question of whether it verified that the physicians were
``authorized to practice medicine in the state where the patient is
located,'' stating: ``No. The doctor makes the consult from the state
in which they are licensed.'' Id. at 4.
Medicom--which apparently was owned by the same person who owned
the Medicine Shoppe--stated that it was not an internet pharmacy. The
pharmacy added, however, that it ``receive[d] Rx from doctors who have
spoken [to] patients, discussed therapy, and also reviewed entire
medical history.'' Resp. Ex. 66, at 2. Notably, Medicom did not
maintain that the prescriptions were issued by the physicians pursuant
to a face-to-face encounter with the patients. Moreover, the
questionnaire indicated that the pharmacy received prescriptions ``via
telemedicine'' and named three websites used by physicians whose
prescriptions the pharmacy filled. Id., at 2 & 4. Finally, when asked
whether it verified that the physicians were authorized to practice
medicine in the states where the patients were located,
[[Page 36500]]
Medicom answered: ``No. The doctor makes the consultation from the
state they are licensed'' in. Id. at 4.
Here again, Mr. Goodrich deemed both the Medicine Shoppe and
Medicom's responses to be adequate despite the obvious indications that
they were not filling lawful prescriptions and Respondent continued to
ship hydrocodone to both pharmacies. Most significantly, in September
2006, it shipped 164,000 dosage units to Medicom; in October, it
shipped 375,690 dosage units to Medicom; and in November, it shipped
385,000 dosage units to the pharmacy.
Avee, another of the identified targets, sent its questionnaire in
nearly a month late. On its questionnaire, Avee indicated that it was
not an internet but rather a ``mail order pharmacy.'' Resp. Ex. 55, at
4. It also answered ``N/A'' to the questions which asked what
percentage of the prescriptions it filled originated on the internet
and to identify the websites used by the physicians who were commonly
issuing the prescriptions it filled. Resp. Ex. 55, at 2 & 4.
I acknowledge that Mr. Goodrich then undertook further inquiry to
determine whether Avee had changed its business model and requested
additional information regarding its due diligence protocols. Resp. Ex.
56. Avee wrote back including a copy of a letter it claimed to have
sent to the physicians who issued the prescriptions it filled. Resp.
Ex. 57. As found above, while that letter correctly stated the four
elements of a legitimate doctor/patient relationship, it also stated
that ``[t]o these, Avee would add an opportunity for the prescribing
practitioner and patient, via some means, to confer.'' Id. at 2 \22\
(emphasis added). Moreover, the letter maintained that ``[i]t is not a
requirement that the prescribing physician himself/herself took the
history or performed the physical examination, as long as the
prescribing practitioner had full and meaningful access to the medical
history and physical examination, and an opportunity to confer with the
patient.'' Id. (emphasis added).
---------------------------------------------------------------------------
\22\ This is page 5 of the exhibit.
---------------------------------------------------------------------------
In short, Avee had not changed its practices from the time of the
February 2006 on-site visit, when Mr. Goodrich noted that the pharmacy
filled ``prescriptions from various sources, including internet-
connected medical providers who provide patient assessments and
diagnosis through unconventional practice models.'' GX 20 (emphasis
added). Respondent nonetheless continued to ship large quantities of
hydrocodone to Avee. Indeed, in September 2006, Respondent shipped
695,800 dosage units to Avee, in October, it shipped 537,900 dosage
units to Avee, and in November, it shipped 2.11 million dosage units to
the pharmacy.
Accumed, another of the ``targeted pharmacies,'' represented in its
questionnaire that it was ``not an internet pharmacy,'' and that zero
percent of the prescriptions it filled originated on the internet.
Resp. Ex. 54, at 2-3. It also indicated ``N/A'' where asked to list the
websites used by the ``physicians who most commonly issue prescriptions
filled by your pharmacy.'' Id. at 4. Notwithstanding the inconsistency
between Accumed's answers and Mr. Goodrich's finding during the
February site visit that the pharmacy had ``ties to the internet,'' GX
17, there is no evidence that Mr. Goodrich undertook any additional
investigation to determine whether it was filling legitimate
prescriptions.
Here again, Respondent continued to sell extraordinary quantities
of hydrocodone to the pharmacy. More specifically, in August 2006,
Respondent sold Accumed 1.267 million dosage units; in September, it
sold 503,020 dosage units; in October, it sold 393,610 dosage units;
and in November, it sold more than 1.56 million dosage units.
Finally, Respondent produced no evidence that it ever received
responses from Medcenter, Discount Mail Meds (a/k/a Liddy's), and
Medichem. See Resp. Exs. 54-72; ALJ at 24-25 (Stipulated FOF 77-86).
Moreover, Respondent's evidence suggests that it did not even send a
questionnaire to Discount Mail Meds. See Resp. Ex. 52, at 2.
Respondent nonetheless continued to distribute large quantities of
hydrocodone to Medcenter until November 16, 2006, when the pharmacy's
registration was suspended. More specifically, Respondent sold
Medcenter 378,000 dosage units in September, 608,000 dosage units in
October, and approximately 314,000 dosage units in the first half of
November.
Respondent also distributed large quantities of hydrocodone to
Discount and Medichem until the immediate suspension of its
registration on December 6, 2006. Between August and November 2006,
Respondent sold Medichem at least 216,000 dosage units each month.
During the same period, the lowest amount Respondent sold to Discount
was 292,720 dosage units in August. Moreover, in October and November,
Respondent sold to Discount more than 500,000 dosage units each month.
Accordingly, I conclude that even after being advised by agency
officials that its internet pharmacy customers were likely engaged in
illegal activity, Respondent failed miserably to conduct adequate due
diligence. Notwithstanding the breadth of information provided during
the conference call, Respondent did not stop selling to any of its
internet pharmacy customers while it investigated the legitimacy of
their businesses activities.
Moreover, even when some of the pharmacies provided information
indicating that the prescriptions they filled were likely illegal,
Respondent continued to distribute large quantities of hydrocodone to
them. Indeed, the only instances in which Respondent stopped supplying
a pharmacy pursuant its ``due diligence'' program was when one pharmacy
(Bi-Wise) entirely failed to submit the questionnaire and when two
other pharmacies (CRJ and YPM) answered nearly every question with a
dash or ``N/A.'' Furthermore, Respondent failed to even send a
questionnaire to one of the pharmacies and continued to ship to two
pharmacies which apparently never submitted a completed questionnaire.
In short, the direct and foreseeable consequence of the manner in
which Respondent conducted its due diligence program was the likely
diversion of millions of dosage units of hydrocodone. Indeed, it is
especially appalling that notwithstanding the information Respondent
received from both this agency and the pharmacies, it did not
immediately stop distributing hydrocodone to any of the pharmacies.
Moreover, in several cases, Respondent actually distributed even larger
quantities of the drug to them. As one of the DIs testified regarding
Respondent's distribution of 2.1 million dosage units to Avee in
November 2006, ``[t]his is an obscene amount of drugs.'' Tr. 617. The
term ``obscene'' also fairly describes Respondent's experience in
distributing hydrocodone to all of its internet pharmacy customers.\23\
---------------------------------------------------------------------------
\23\ Respondent attempts to excuse its conduct on the ground
that it repeatedly asked DEA officials whether it should stop
selling to the pharmacies only to be told by DEA officials that they
could not tell them whether or not to sell because that was a
business decision. Resp. Br. 33. Several courts have held, however,
that DEA has no authority under the CSA to tell a distributor
whether to sell or not. See PDK Labs Inc., v. Ashcroft, 338
F.Supp.2d 1, 14 (D.D.C. 2004).
Respondent also faults the July 2006 presentation by agency
personnel as ``[s]easoned with antiquated case law and dense,
professional material,'' and asserts that it had ``little pedagogic
value.'' Resp. Br. at 34. The Supreme Court's decision in United
States v. Moore, 423 U.S. 122 (1975), however, remains good law. As
for the purportedly ``dense, professional materials,'' these
documents were typically no more than a handful of pages in length
and surely capable of being understood by a person of reasonable
intelligence. See GX 61. Indeed, based on the questionnaire Mr.
Goodrich prepared, it seems clear that he understood the
requirements for a valid prescription and legitimate doctor/patient
relationship even if he chose to ignore the information provided by
many of the pharmacies. See Resp. Ex. 52.
I further note, however, that the Agency had no obligation to
conduct the July 2006 briefing. In any event, in April 2001, the
Agency published in the Federal Register a guidance document
explaining the potential illegality under existing law of the
activities engaged in by Respondent's internet pharmacy customers.
See Dispensing and Purchasing Controlled Substances over the
Internet, 66 FR 21181 (2001).
---------------------------------------------------------------------------
[[Page 36501]]
Respondent's Failure to Report Suspicious Orders
The record further demonstrates that Respondent repeatedly failed
to report any of its sales to the Florida-based internet pharmacies as
suspicious orders even though, as the ALJ concluded, the purchases by
these customers ``fell within the regulatory definition of suspicious
orders.'' ALJ at 49. From its first distribution of hydrocodone
products in December 2005 through its last in December 2006, not once
did Respondent report a suspicious order.
Moreover, Respondent failed to report these distributions
notwithstanding (1) that the Florida-based pharmacies were ordering
massive quantities of hydrocodone, quantities which greatly exceeded
what Respondent sold to traditional retail pharmacies, and (2) that
controlled substances typically constituted all but a miniscule
percentage of the prescriptions drugs being ordered by the Florida-
based pharmacies. For example, between December 7 and December 31, 2005
(a three-and-a-half week period), Respondent distributed approximately
817,000 dosage units of hydrocodone to Medipharm. This amount was 109
times the amount of hydrocodone that Respondent typically sold in a
month to its retail pharmacy customers. Moreover, controlled substances
comprised 98 percent of Medipharm's purchases of prescriptions drugs
from Respondent.
Notwithstanding this information, Respondent did not deem
Medipharm's purchases to be suspicious. It did not report any of
Medipharm's subsequent purchases as suspicious even though the pharmacy
never purchased less than 703,000 dosage units of hydrocodone in a
month and purchased more than a million dosage units of this drug in
six different months. Moreover, even though between December 2005 and
June 2006, controlled substances constituted 99% of Medipharm's
prescription drug purchases from it and was specifically identified as
a targeted pharmacy, Respondent never reported the purchases as
suspicious.
As another example, between December 21st and 31st, 2005, Avee
purchased approximately 346,000 dosage units of hydrocodone from
Respondent. Just as in the case of Medipharm, this amount--which
involved only ten days of purchases--greatly exceed Respondent's
average monthly sale of hydrocodone to a traditional pharmacy.
Moreover, while Avee was only a customer for ten days during the seven-
month period of June through December 2005, Avee nonetheless made
Respondent's list (ranking eighth) of its largest purchasers of
controlled substances. See Resp. Ex. 46. Moreover, controlled
substances constituted 100 percent of Avee's purchases of prescription
drug products from Respondent. Id.
Here again, Respondent did not report any of Avee's purchases as
suspicious. It did not do so after Mr. Goodrich acquired information
during the February site visit indicating that Avee was engaged in the
filling of illegitimate prescriptions. Nor did it do so even after the
July 2006 conference call when DEA officials informed Respondent that
it was a targeted pharmacy. It did not do so even in November 2006,
when it distributed more than 2.1 million dosage units of hydrocodone
to Avee.
Moreover, as it obtained additional Florida based customers, who
proceeded to order excessive quantities of hydrocodone, Respondent
never reported any of these pharmacies' orders as suspicious. To the
contrary, on various occasions, it submitted e-mails to DEA field
personnel affirmatively stating that it had reviewed its customer's
purchases of controlled substances and had ``no suspicious activity to
report.'' See GX 9 (Dec. 2005); GX 10 (Jan. 2006); GX 11 (Mar. 2006);
GX 12 (April 2006).
Respondent contends that ``[t]he [G]overnment's focus on [its]
failure to report orders as suspicious in early 2006 is a red
herring.'' Resp. Br. 34. Respondent argues that its failure to file
suspicious order reports was not the result of any intent to mislead
and points to the fact that in February 2006, it submitted a report
that identified Medipharm, Avee and Accumed as among its largest
purchasers of controlled substances. Id. Respondent also argues that by
filing reports with DEA's ARCOS unit ``it alerted the DEA to
Southwood's commerce with internet pharmacies.'' Id.
Even if Mr. Goodrich had no intent to mislead by submitting these
negative reports, Respondent still violated the regulation by failing
to report suspicious orders. That some of the pharmacies were
identified on the two reports Respondent submitted listing its largest
purchasers of controlled substances (which Respondent submitted in
February and July 2006), does not excuse its failure to comply with the
regulation. Those reports did not comply with the regulation for
several reasons.
First, they were not timely submitted. See 21 CFR 1301.74(b)
(requiring reporting of ``suspicious orders when discovered by the
registrant''). Indeed, many of the pharmacies had been purchasing
extraordinary quantities of hydrocodone for months by the time
Respondent submitted its July 2006 report. Second, the reports did not
list several of the internet customers--even though they had purchased
large quantities--either because they had only recently become
customers (as in the case of Grand Pharmacy and the Medicine Shoppe),
or because the pharmacy had only purchased hydrocodone from Respondent
for a limited time (as in the case of Elite).
Nor does Respondent's filing of ARCOS reports excuse its failure to
report suspicious orders. The ARCOS reporting requirement and the
suspicious orders reporting requirement serve two different purposes.
While ARCOS provides the Agency with information regarding trends in
the diversion of controlled substances, the reports need not be
submitted until fifteen days after the end of the reporting period. In
contrast, as explained above, a suspicious order must be reported
``when discovered by the registrant.'' 21 CFR 1301.74(b). The
suspicious orders reporting requirement exists to provide investigators
in the field with information regarding potential illegal activity in
an expeditious manner. Respondent's compliance with the ARCOS reporting
requirement is thus not a substitute for its failure to report
suspicious orders.\24\
---------------------------------------------------------------------------
\24\ Finally, Mr. Goodrich testified that the reason Respondent
did not file the reports even after being told during the July 2006
conference call of the highly suspicious nature of the activities of
the Florida-based pharmacies was that the pharmacies were already
under investigation. Respondent's awareness of an ongoing
investigation does not, however, excuse its failure to report its
customers' continued suspicious orders. Indeed, such information
might well enable the agency to complete its investigation.
---------------------------------------------------------------------------
Accordingly, I further conclude that Respondent repeatedly violated
federal
[[Page 36502]]
regulations by failing to report suspicious orders. 21 CFR 1301.74(b).
As explained above, the record also clearly establishes that
Respondent's experience in distributing controlled substances is
characterized by recurring distributions of extraordinary quantities of
controlled substances to entities which then likely diverted the drugs
by filling prescriptions which were unlawful. Moreover, Respondent's
due diligence measures were wholly inadequate to protect against the
diversion of the drugs. Respondent's failure to maintain effective
controls against diversion and its experience in distributing
controlled substances thus support the conclusion that its continued
registration would be ``inconsistent with the public interest.'' 21
U.S.C. 824(a)(4).
Factor Six--Other Factors Relevant to and Consistent With Public Health
and Safety
Respondent ``concedes that the Government has established a prima
facie case * * * that [its] continued registration may be inconsistent
with the public interest.'' Resp. Br. 31. Respondent contends, however
that there is sufficient evidence ``of mitigation and ongoing
remediation by [it] to compel a conclusion that to revoke its
registration would be inconsistent with the public interest.'' Id.
(citations omitted).
More specifically, Respondent argues that its ``cooperation with
and responsiveness to * * * DEA [should] also be considered in
evaluating whether [its] continued registration is in keeping with the
public interest.'' Id. at 37. Respondent maintains that it has
undertaken several remedial measures ``to prevent the occurrence of
further violations,'' and that therefore, a sanction less than
revocation is warranted. These measures include: (1) The development of
a new SOP ``to more rapidly detect suspicious orders''; (2) placing its
new COO ``in charge of DEA compliance''; (3) retaining a consultant to
audit its compliance efforts; and (4) working with the consultant ``to
develop a means of interdicting suspicious orders of controlled
substances before they are shipped.'' Resp. Br. 36.
The ALJ agreed with Respondent. According to the ALJ, ``Respondent
has worked with * * * DEA throughout its registration,'' and had
``worked closely with local DEA diversion investigators to establish
systems to control against the diversion of controlled substances.''
Id. at 54-55. The ALJ also noted that Respondent had ``consistently
submitted'' ARCOS reports without any deficiencies noted. Id. at 54.
Addressing the issue of its responsiveness to the Agency, the ALJ
noted that Respondent attempted to obtain information from the Florida
Board, that it sent questionnaires to the pharmacies and developed a
new customer profile to evaluate new accounts, and that it adopted a
policy under which it stopped filling orders placed by pharmacies whose
registrations had been continued on a day-to-day basis but not renewed.
Id. at 59-60.
The ALJ also explained that ``Respondent continues to demonstrate a
willingness to bring its business practices into compliance with DEA
regulations,'' and noted that its new COO ``has a firmer grasp [of]
these regulatory requirements.'' Id. at 61. Reasoning that Respondent
had ``kept an open dialogue with the DEA and has attempted to come into
compliance with the DEA's regulations,'' and had not previously been
subject to enforcement action, the ALJ concluded that revocation of its
``entire * * * registration is too severe a remedy'' even though
Respondent had ``irresponsibly sold'' what she described as ``egregious
quantities'' of hydrocodone to the Florida internet pharmacies. Id. at
62.
I disagree with both Respondent and the ALJ. As for Respondent's
view, its ``circumstances'' do not ``compare favorably with [those of]
registrants'' whose registrations have not been revoked, but rather,
subjected to lesser sanctions. See Resp. Br. 36. As for the ALJ's view
that Respondent had kept ``an open dialogue,'' the record amply
establishes that Respondent is not a good listener.
For support, Respondent cites my decision in Joy's Ideas, 70 FR
33195 (2005), where I noted that the registrant had taken ``aggressive
actions to improve her'' accountability systems. Id. at 33198.
Notwithstanding that the registrant ``may have been an unknowing and
unintentional contributor'' to the methamphetamine problem, I still
revoked her registration based on evidence that large amounts of the
products she distributed were being diverted. Id. at 33198-99. The case
thus does not support Respondent for two reasons: (1) I revoked the
registration in Joy's Ideas notwithstanding the mitigating evidence,
and (2) here, Respondent had reason to know that it was contributing to
the diversion of hydrocodone through most, if not all, of the
pharmacies it supplied.
Respondent also cites Service Pharmacy, Inc., 61 FR 10791 (1996),
which noted that a registrant's adherence to the terms of a consent
order it had entered into with state authorities supported its being
allowed to maintain its DEA registration. Respondent argues by analogy
that its ``cooperation with and responsiveness to * * * DEA [should]
also be considered in evaluating whether [its] continued registration
is [consistent] with the public interest.'' Resp. Br. 37.
I agree that Respondent's level of cooperation and responsiveness
to DEA should be considered in determining the appropriate sanction. It
is true that there is some evidence of Respondent's having been a
cooperative registrant as to some issues involving its responsibilities
under the CSA. In particular, Respondent worked with a diversion
investigator to develop a suspicious orders reporting system (although
it was developed for a different customer base). There was also no
evidence of Respondent's non-compliance with the CSA prior to its
decision to supply internet pharmacies.
On the other hand, even were I to completely ignore Respondent's
conduct during the period between December 2005, when it started
supplying the pharmacies, and the July 2006 conference call, the record
further demonstrates that it did not adequately respond to the
information DEA provided it in July 2006. As explained above,
Respondent did not cut off any of the pharmacies until more than three
months after being informed of the potential illegality of the
pharmacies' activities. Indeed, it did not even enforce the deadline it
set in its questionnaire.
Moreover, while some of the responses to the questionnaires were
either false or were cleverly prepared by a wordsmith, in a number of
other instances the responses contained information--which Respondent
then ignored--that clearly suggested that the pharmacy was filling
invalid prescriptions. Finally, Respondent continued to sell large
quantities to many of the pharmacies--including those specifically
identified as targeted--up until the suspension of either the
pharmacy's registration or its own registration. Contrary to
Respondent's view, the entire body of evidence regarding its
cooperation and responsiveness does not support its continued
registration.
While finding that ``Respondent continues to fail to adequately
protect against diversion of hydrocodone products,'' ALJ at 59, the ALJ
nonetheless concluded that to revoke its entire registration would be
``too severe a remedy,'' presumably because there was ``no evidence of
[its] improper
[[Page 36503]]
handling of any other controlled substances.'' Id. at 62. The ALJ,
however, offered no explanation as to why Respondent's procedures were
nonetheless sufficient to entrust it with authority to distribute other
controlled substances.
To the extent the ALJ's recommendation was based on the lack of
evidence showing that Respondent improperly handled other controlled
substances, the ALJ erred. The Government is not required to prove that
multiple categories of the drugs Respondent distributed were diverted
in order to sustain the revocation of its entire registration. Rather,
proof that a single category of a drug it distributed was diverted is
enough to support the revocation of Respondent's entire
registration.\25\
---------------------------------------------------------------------------
\25\ As for the Government's exception, when a party intends to
rely on evidence contained in a CD-ROM, it has the obligation to
prepare a summary setting forth what the data contained therein
show. That summary must be prepared and served on opposing counsel
along with a copy of the CD-ROM in advance of the hearing. It is not
the responsibility of the ALJ or this Office to plumb the depths of
such an exhibit to determine what the data show. Moreover, such
evidence should not be admitted into the record unless the proponent
of the exhibit establishes an adequate foundation for its admission
by identifying and authenticating the exhibit; this must be done
even if opposing counsel do not object to its admission.
---------------------------------------------------------------------------
The ALJ apparently was persuaded by the various measures undertaken
by Respondent to bring itself into compliance. Among these was
Respondent's hiring of its new COO. According to the ALJ, the new COO
is ``an experienced officer who will be making the final decisions
concerning * * * Respondent's compliance measures,'' and this hiring
``operates as an increased level of protection of the public interest
and [its] compliance with DEA regulations in its business practices.''
ALJ at 62. The ALJ also noted that Respondent had voluntarily agreed
``to cease selling controlled substances to Internet pharmacies.'' Id.
at 63. Relatedly, Respondent points to its retaining of a consultant to
audit its DEA compliance efforts and to develop a means of interdicting
suspicious orders before they are shipped.
As for Respondent's hiring of its new COO, the record establishes
that Mr. Schwartz commenced his duties on September 26, 2006. Mr.
Schwartz was thus the COO for more than two months before the immediate
suspension order was served. Yet during this period, Respondent
continued to distribute extraordinary quantities of hydrocodone to
numerous internet pharmacies. Moreover, with respect to some of the
pharmacies, it actually distributed increasing quantities culminating
with the 2.1 million dosage units it sold to Avee in November 2006.
In his testimony, Mr. Schwartz claimed that he did not become aware
of Respondent's sales to the internet pharmacies and DEA's interest in
the matter until on or about November 2, 2006, when DEA investigators
visited Respondent and again met with its employees including Mr.
Goodrich.\26\ Mr. Schwartz testified that it took ``a couple of days''
for him to be given the notebook which DEA investigators had provided
to Respondent before the July conference call and review it, and that
on December 5, 2007--approximately four weeks later--he and Mr. Sempre
(Respondent's owner) came to the decision to cease doing business with
the Florida pharmacies.
---------------------------------------------------------------------------
\26\ As Mr. Schwartz testified, ``when a regulatory agency is
on-site * * * everybody in the company knows about it. Word travels
quickly.'' Tr. 937.
---------------------------------------------------------------------------
While the ALJ credited Mr. Schwartz's testimony, I decline to give
any weight to Respondent's stroke-of-midnight decision in determining
the appropriate sanction. See, e.g., Vico Products Co., Inc., v. NLRB,
333 F.3d 198, 211 (D.C. Cir. 2003). As an initial matter, I note that
it should not have taken five weeks for Mr. Schwartz to even become
aware of Respondent's sales to the internet pharmacies. Moreover, given
the information Mr. Schwartz claims to have reviewed and his extensive
experience in the industry, it should not have taken another four weeks
to decide to stop selling to these entities.
Most importantly, the decision must be considered in light of the
evidence that for nearly a year prior to it, Respondent distributed
millions of dosage units of hydrocodone products to entities which were
likely diverting the drugs. Moreover, Respondent continued to
distribute hydrocodone to the pharmacies following at least two
meetings in which DEA investigators discussed the questionable
practices of these pharmacies. As the Seventh Circuit has noted, ``[a]n
agency rationally may conclude that past performance is the best
predictor of future performance.'' ALRA Laboratories, Inc., v. DEA, 54
F.3d 450, 452 (7th Cir. 1995). In short, Respondent's decision is too
little, too late, to persuade me that it can be entrusted with a
registration.
Nor does the other evidence Respondent presented regarding its
remedial efforts persuade me that a sanction less than revocation is
warranted. Respondent's distribution of 44 million dosage units of
hydrocodone which were likely diverted caused extraordinary harm to the
public health and safety. Moreover, the record establishes that
Respondent had reason to know that the hydrocodone it distributed was
likely being diverted.
As the record demonstrates, for nearly a year, Respondent
repeatedly supplied these drug pushers with large quantities of
hydrocodone. Respondent commenced supplying the pharmacies showing
little interest in determining whether they were engaged in lawful
activity. Moreover, Respondent continued to supply the pharmacies even
after being advised by this Agency of the likely illegality of their
activities. Finally, while Respondent eventually undertook some
inquiries, it then frequently ignored the information it obtained from
the pharmacies themselves, which indicated that they were likely
filling unlawful prescriptions, and continued to supply most of them.
Given the scope of Respondent's conduct and the harm it caused, I
decline to accept its assertions of reform. I therefore conclude that
this factor also supports the conclusion that Respondent's continued
registration ``is inconsistent with the public interest.'' 21 U.S.C.
823(d). Finally, for the same reasons which led me to order the
immediate suspension of Respondent's registration, I further hold that
this order shall be effective immediately. See 21 CFR 1316.67.
* * * * *
My determination is based on the reasons set forth above, and those
reasons are sufficient by themselves to support the revocation of
Respondent's registration. There is, however, an additional
consideration, which, while not necessary to decide this case, bears
mentioning. Specifically, to allow Respondent to maintain its
registration--even subject to the conditions as proposed by the ALJ
and/or Respondent--would create a perverse incentive. A precedent which
ignores how irresponsibly a registrant has acted and allows it to
maintain its registration based on its claim of having reformed its
business practices, could well prompt other registrants to ignore their
obligations under the Act and sell massive quantities of controlled
substances to diverters.
I acknowledge that proceedings under sections 303 and 304 of the
CSA are non-punitive. See Samuel S. Jackson 72 FR 23848, 23853 (2007);
Leo R. Miller, 53 FR 21931, 21932 (1988). Relatedly, DEA precedent
holds that a proceeding under these provisions ` ``is a remedial
measure, based upon the public interest and the necessity to protect
the public
[[Page 36504]]
from those individuals who have misused * * * their DEA Certificate of
Registration, and who have not presented sufficient mitigating evidence
to assure the Administrator that they can be [en]trusted with the
responsibility carried by such a registration.' '' Jackson, 72 FR at
23853 (quoting Miller, 53 FR at 21932).
Neither Jackson nor any other agency decision holds, however, that
the Agency cannot consider the deterrent value of a sanction in
deciding whether a registration should be revoked. Moreover, even when
a proceeding serves a remedial purpose, an administrative agency can
properly consider the need to deter others from engaging in similar
acts. Cf. Butz v. Glover Livestock Commission Co., Inc., 411 U.S. 182,
187 (1973). Consideration of the deterrent effect of a potential
sanction is supported by the CSA's purpose of protecting the public
interest, see 21 U.S.C. 801, and the broad grant of authority conveyed
in the CSA's statutory text, which authorizes the revocation of a
registration when a registrant has committed acts that render its
``registration * * * inconsistent with the public interest,'' id.
824(a)(4), and specifically directs the Attorney General to consider
``such other factors as may be relevant to and consistent with the
public health and safety.'' Id. 823(d)(6).
As noted by a recent study of the National Center on Addiction and
Substance Abuse (CASA), ``the abuse of controlled prescription drugs in
America now eclipses abuse of all illicit drugs combined, except
marijuana.'' GX 3 (Declaration of Joseph T. Rannazzisi). According to
the CASA study, ``between 1992 and 2003, abuse of controlled
prescription drugs grew at a rate twice that of marijuana abuse, five
times greater than cocaine abuse, and 60 times greater than heroin
abuse.'' Id. Relatedly, CASA has found that the number of ``controlled
prescription drug-related visits to emergency rooms has increased three
and a half times more than heroin-related visits and four times more
than visits linked to cocaine abuse.'' Id. Moreover, ``between 1994 and
2002, emergency department reports of hydrocodone * * * overdoses
increased by 170 percent.'' Id.
Equally alarming are the results of the National Institute of Drug
Abuse (NIDA) 2004 survey of eighth, tenth and twelfth grade school
children. According to the survey, ``9.3 percent of twelfth graders
reported using Vicodin, a brand name Schedule III controlled substance
containing hydrocodone, without a prescription in the previous year.''
Id.
Illegitimate internet sites play an increasingly large and
disturbing role in facilitating the growth of prescription drug abuse.
Id. at 1-2.; see also William R. Lockridge, 71 FR 77791 (2006). Because
these websites allow a person to obtain a controlled substance based on
a prescription which is issued outside of a legitimate doctor/patient
relationship and the safeguards that relationship provides,
``[a]nyone--including children--can easily obtain highly addictive
controlled substances online.'' GX 3, at 2.
As stated above, these websites and the pharmacies that fill the
prescriptions issued by them, are nothing more than drug pushers
operating under the patina of legitimate authority. Cutting off the
supply sources of these pushers is of critical importance in protecting
the American people from this extraordinary threat to public health and
safety. In accomplishing this objective, this Agency cannot do it all
itself. It must rely on registrants to fulfill their obligation under
the Act to ensure that they do not supply controlled substances to
entities which act as pushers. And to make clear, because of the threat
to public safety posed by the diversion of controlled substances
through the internet, the deterrent value of a sanction is an
appropriate consideration in proceedings brought under sections 303 and
304 of the CSA.
Order
Pursuant to the authority vested in me by 21 U.S.C 823(d) & 824(a),
as well as 28 CFR 0.100(b) & 0.104, I order that DEA Certificate of
Registration, RS0204898, issued to Southwood Pharmaceuticals, Inc., be,
and it hereby is, revoked. I further order that the pending application
of Southwood Pharmaceuticals, Inc., for renewal of its registration be,
and it hereby is, denied. Moreover, for the same reasons which led me
to conclude that Respondent's continued registration constituted an
imminent danger to public health and safety, this order is effective
immediately.
Dated: June 22, 2007.
Michele M. Leonhart,
Deputy Administrator.
[FR Doc. 07-3218 Filed 7-2-07; 8:45 am]
BILLING CODE 4410-09-P