As you undoubtedly should know by now, on April 22, 2019, the United States Attorney for the Southern District of New York entered into a Deferred Prosecution Agreement (the “Agreement”) with the Rochester Drug Co-operative, Inc. (“RDC”).

Specifically, the government announced that

“RDC agreed to accept responsibility for its conduct by making admissions and stipulating to the accuracy of an extensive Statement of Facts, pay a $20 million penalty, reform and enhance its Controlled Substances Act compliance program, and submit to supervision by an independent monitor.”

U.S. Attorney Geoffrey S. Berman touted this “first of its kind” action against a pharmaceutical wholesaler and the special agent in charge of DEA’s New York Division, in an interview with Martha MacCallum on Fox News, indicated that this case provides a blueprint for the government to pursue criminal enforcement actions against other pharmaceutical companies.  I certainly agree with Mr. Berman.  Whether this case is a model for similar investigations, remains to be seen.

Because of the uniqueness and importance of this matter, I urge my readers  to put down the Mueller Report (spoiler alert: the Mueller Report is 448 pages long), read the documents associated with the Agreement, and reach your own conclusions.

For me, it is frustrating that the government and media are painting all pharmaceutical companies as bad actors, based on the conduct of RDC.  Yes, there are bad actors in this space, but they are the exception, not the rule.  The vast majority of companies are trying to do the right thing and want to be part of the solution.

There is clearly a misunderstanding by the government and media of how the pharmaceutical supply chain operates (a blog for another day?).

It is also frustrating when the government mischaracterizes the law when discussing these very important matters (e.g., despite statements made in the Information, there is no legal obligation to report “bad customers” to DEA – thanks for letting me vent).

With that said, the opioid epidemic is a real problem and there is no place for bad actors in the marketplace.  The facts alleged against and agreed to by RDC, clearly show a company that was a significant part of the problem.  With all the government and media hyperbole comparing RDC and other “bad” pharmaceutical companies to the cartel, it begs the question, why did the government allow RDC to stay in business?

Does that say anything about the strength of the government’s legal theory of this case?  Perhaps that too is a blog for another day.  It will certainly be interesting to see how the case against RDC’s former CEO plays out in court and whether those legal theories are tested.

So….what can we (read: you) “learn” from the Agreement?

  • Senior management should stay out of compliance decisions. It goes without saying that the same goes for business/operations/sales management.  Let your compliance team do its job.  Management should focus on creating a culture of compliance and supporting the work of the individuals performing the difficult task of navigating through the ever-changing and sometimes contradictory obligations imposed by the CSA, DEA regulations, and the agency’s sub-regulatory guidance.  If this is a difficult pill to swallow (bad pun intended) you should get out of the controlled substance distribution business.
  • It is not a “Compliance Department” if it only contains one or two employees, with other responsibilities and no DEA compliance training or expertise. Again, if you want to play in this space, do it right or not at all (I am feeling a little preachy tonight!).
  • Controlled substances should not be the foundation of your business growth plan – I wanted to say something really snarky here but my editor would not allow it.
  • In addition to complying with your legal obligations, follow your own policies and procedures – I thought we learned that lesson from Masters?
  • Failure to conduct due diligence for existing and new customers is frowned upon by the government – I hope I am preaching to the choir with this one (fingers crossed).
  • Unfortunately, we cannot learn much about suspicious order reporting, except that failure to report any orders is a recipe for disaster. Is the government indicating in its filing that all “orders of interest” should have been reported to DEA?  This certainly goes against what a senior-level employee in the Diversion Control Division said at a recent conference (yet another potential blog post – I am going to be busy!).
  • The most important lesson learned. Be sure to follow the recommendations of consultants and outside counsel – yes, that was self-serving, but also an important take away from the facts presented in the Agreement.


*Photo by niu niu on Unsplash