On June 30, 2017, the Court of Appeals for the D.C. Circuit issued an order in Masters Pharmaceutical, Inc. v. Drug Enforcement Administration (No. 15-1335). In sum, the Court denied Masters Pharmaceutical, Inc.’s (“Masters”) Petition for Review seeking to overturn the Drug Enforcement Administration’s (“DEA”) revocation of Masters’ DEA registration. This decision has wide-ranging implications for DEA-registered wholesalers, who are required to detect and report suspicious orders of controlled substances.

Here are a few takeaways from the Court’s decision:

  • The facts here were not on Masters’ side, making them less than a sympathetic petitioner. In a time where the opioid crisis is now considered an “epidemic” and garnering attention at the highest levels, it was likely difficult for the Court to justify overturning the DEA’s Final Order in a case where the petitioner: distributed large quantities of controlled substances to pharmacies that it knew or should have known were dispensing controlled substances for other than legitimate medical purposes; failed to follow its own policies and procedures; ignored/overlooked questions from its own employees regarding the distributions and allowed the drugs to be shipped anyway; and has been in trouble with the Agency before for similar misconduct.
  • These “bad facts” led to a decision that will have a significant impact on suspicious order detection and reporting across the industry. In affirming the DEA’s decision, the Court interpreted the suspicious order reporting requirement much more broadly than DEA. 21 C.F.R. § 1301.74(b) provides that non-practitioner registrants must design and implement a system to disclose suspicious orders of controlled substances. This regulation defines suspicious orders as “orders of unusual size, orders deviating substantially from a normal pattern, and orders of unusual frequency.” Consistent with DEA’s past guidance, the Court agreed that the criteria listed in DEA’s regulations for determining whether an order is suspicious is not an exhaustive list. The Court, however, then went on to take a less nuanced view on what must be reported to DEA under this regulation. DEA field division offices across the country have historically differed on how they interpret their own regulations. Some offices demand that registrants provide notice of all orders that are flagged by the registrant’s suspicious order monitoring program, while others only want orders reported that are deemed to be suspicious after the registrant has conducted an investigation of the order. The Court’s decision clearly supports the former reporting system. Arguably, the Court left open the possibility that flagging an order and investigating the order before reporting to DEA could satisfy a registrant’s reporting obligations. The Court cautioned registrants that if they “choose to shoulder the burden of dispelling suspicion in hopes of shipping…” then the distributor must conduct a detailed investigation each and every time in attempting to resolve the suspicion. On the contrary, the Court clearly states that “it is not necessary for a distributor of controlled substances to investigate suspicious orders if it reports them to DEA and declines to fill them.” With that said, it is difficult to envision a scenario where the flag and investigate approach would not violate the reporting requirement, especially where the Court’s unanimous view is that all orders that are flagged based on objective mathematical criteria designed to identify unusual volume, pattern, or frequency fall within the “suspicious order” definition of the regulations.
  • While the Masters case was obviously an important win for DEA, there are significant collateral consequences for the Agency. Whether a company utilizes an off-the-shelf product or has developed its own methodology for detecting and reporting suspicious orders, all suspicious order monitoring programs rely on objective mathematical criteria based on historic ordering patterns. As DEA has ramped up enforcement action against distributors the past ten or so years, many registrants have become more conservative in their monitoring of orders and reporting as suspicious orders flagged by their monitoring systems. The Masters decision may result in more registrants simply reporting every order flagged by their monitoring systems instead of conducting an investigation to determine whether the order should really be reported as suspicious. In turn, this could lead to DEA receiving voluminous amounts of suspicious order reports, making it more difficult for the Agency to use the data as a means of investigating potential bad actors within the system.
  • Perhaps the Masters decision will prompt DEA to take meaningful action, by working with the industry it regulates to figure out a better way to monitor for and report suspicious orders. Reporting orders that are truly suspicious provides useful investigative tools for DEA, whereas reporting all orders that are flagged by a mathematical algorithm is a frankly less than helpful exercise. If DEA really wants to make meaningful progress in combating the opioid epidemic, then it should create a working group with subject matter experts and representatives from industry to develop new suspicious order regulations. If DEA continues to be unwilling to do so, then it is going to need a lot more storage space to accommodate the influx of data coming its way.


Disclosure:  The author submitted an amicus brief in this matter on behalf of a client.