On September 30, 2020, DEA published a Final Rule (FR) adopting the Interim Final Rule (IFR) implementing the Ryan Haight Act. The FR made a few technical changes to the regulations and did not substantively change the IFR. What garnered my attention was DEA’s response to comments submitted after publication of the IFR.

In response to questions about a DEA-registered distributor’s obligation to investigate a pharmacy’s online activities, DEA regurgitated a laundry list of items that DEA believes a distributor needs to include in its customer diligence program, most of which was included in DEA’s letters to industry going back 15 years or so. What caught my eye was the following nugget:

“Thus, a distributor should be obtaining and reviewing utilization/dispensing reports both upon taking on a new customer and periodically throughout the course of its relationship with its customer. As Masters makes amply clear, the failure to obtain and review this information may constitute strong evidence that a distributor has failed to maintain effective controls against diversion and support a finding that its registration is inconsistent with the public interest.”

I must admit that I am somewhat perplexed by this declaration.

More than four years ago, I wrote about DEA’s evolving view on due diligence requirements for distributors of controlled substances. As you may recall, the legal arguments made by government attorneys defending the agency’s decision in Masters in federal court directly contradicted the Masters Final Order.

Masters Final Order

“I conclude that a distributor is required to use the most accurate information available to it. Because the [pharmacy utilization reports (URs)] show the actual dispensing level of each drug, and questionnaires and surveys provide only estimates, I conclude that a distributor must use the URs in evaluating whether a customer’s dispensing ratio is suspicious.

Compare with:

DEA’s Brief in Federal Court

“Most of the “new duties” that Masters and amici cite in their briefs were obligations that Masters had voluntarily imposed on itself through its own compliance program. [citation omitted] The Administrator cited Masters’ failure to perform many of these duties – such as obtaining utilization reports or asking customers for explanations of unusually large orders – because Masters sought to rely on its compliance program to justify its reporting failures. However, in highlighting Masters’ disregard for its own program’s requirements, the Administrator did not impose those same requirements on all registered distributors.

When trying to understand the extent of your due diligence obligations, can a distributor rely on the legal arguments made by a government attorney before a federal judge? You would think so. But what happens when the position taken in federal litigation is contradicted by the same agency being defended in that litigation? A conundrum indeed.