(If this song is stuck in your head all day long, you are welcome.)

As my loyal readers are aware (too Bridgerton?), customer due diligence obligations, especially for distributors and manufacturers, have significantly evolved over the past several years.  When I joined the Drug Enforcement Administration (DEA) nearly two decades ago (back when registrants were still able to send their ARCOS reports via floppy disk), only a handful of distributors were conducting some level of due diligence on their customers and the number of manufacturers doing the same was much smaller.  Enforcement actions, changes to the CSA and DEA regulations, an increase in engagement with industry by DEA, multi-district litigation, among other things, have drastically impacted the scope and quality of customer due diligence.  Pharmacy owners, who used to only be concerned with Boards of Pharmacy or DEA, are now being watched closely by the upstream entities in their supply chain. 

While pharmacies have grown accustomed to answering diligence questionnaires, providing dispensing data, and responding to inquiries regarding potential suspicious orders from their distributors, many pharmacies may not be aware that their dispensing practices related to controlled substances are also being closely scrutinized by some manufacturers.  This is not a new phenomenon – one or two manufacturers have been investigating their customers’ customers for several years – but the practice is becoming more common, more robust, and with significant consequences for pharmacies. 

What are they looking at?

There are a variety of tools available to manufacturers to conduct diligence on their customers’ customers.  While every company has its own compliance policies and procedures, ARCOS data, chargeback information, and de-identified prescription data are common resources for manufacturers.  Some manufacturers may also seek information about your pharmacy from your distributor’s diligence file.   

Why should this concern you?

Again, internal processes may vary, but the results are similar and potentially dire for your pharmacy.  If a manufacturer is unable to resolve the concern(s) it has with your pharmacy (i.e., red flags) it may restrict your pharmacy from purchasing the manufacturer’s products.  This is done, among other ways, by notifying distributors that the manufacturer will no longer honor chargebacks for your pharmacy and/or prohibiting distributors from selling any of the manufacturer’s products to your pharmacy. 

Some manufacturers will also notify DEA that your pharmacy has been restricted, which could lead to an investigation or an otherwise unpleasant visit from DEA.

In short, the consequences are serious and cannot be ignored.

What can you do?

Be proactive.  In addition to scrutinizing controlled substance prescriptions at dispensing (i.e., exercising corresponding responsibility), you should periodically review your dispensing data for potential red flags, understand the market your serve and whether your dispensing practices are outside of what is “normal,” and engage with regulators to gain better insight on potential red flags, common diversion schemes, and best practices.  

It goes without saying that the current business environment for pharmacies is extremely challenging.  While there are several headwinds that make operating a profitable pharmacy difficult, it is impossible to stay in business if you lose your state license, DEA registration and/or the ability to purchase prescription drug products from one or more manufacturers. 

 

If you want to visibility into your prescribing data, let me know and we can set up a free demo.