The pharmaceutical industry and the Controlled Substances Act: A distinct breed of monitorship

Introduction

A distinct component of the healthcare industry includes companies that manufacture, distribute or dispense prescription medicines (hereinafter, pharmaceutical company or companies). In general, these companies are regulated by the Food and Drug Administration, which is an agency of the US Department of Health and Human Services (HHS). Pharmaceutical companies that produce, distribute or dispense controlled substance prescription medicines are also regulated by the Drug Enforcement Administration (DEA), an agency of the US Department of Justice (US DOJ). Civil or criminal settlement agreements for violations of law often result in the appointment of a monitor or an independent review organisation (IRO).

For the most part, pharmaceutical company settlements resulting in a monitorship or IRO have involved violations of a broad array of healthcare laws, including fraudulent claims, kickbacks to prescribers, payments of inappropriate speaker fees, misbranding violations and foreign bribery. What have been less common are settlements stemming primarily from violations of the Controlled Substances Act (CSA). The CSA authorises the DEA to regulate licensed pharmaceutical companies that handle controlled substance prescription drugs, including opioids. As the United States continues to battle with opioid addiction (which was exacerbated by the global pandemic), settlements of CSA-related allegations have continued to be reached.

Since 2017, monitorships or IRO arrangements have been imposed in several cases focused almost exclusively on alleged violations of the CSA. Interestingly, monitors have also been imposed – and will be imposed in the future – in cases concerning the civil settlements of the thousands of opioid lawsuits brought in recent years by state and local governments across the United States. In addition, two large pharmaceutical manufacturers, both of which filed for bankruptcy protection as a result of opioid civil suits, voluntarily agreed to compliance terms overseen by monitors and their law firms.

This chapter discusses the history and rationale for monitorships in the healthcare industry generally and the pharmaceutical industry specifically. It also describes the relationship between the opioid crisis and US DOJ-imposed or DEA-imposed monitorships involving violations of the CSA. Finally, the chapter details the above-mentioned CSA-related monitorships and offers predictions for the future.

History and rationale for monitorships in the pharmaceutical industry

Pharmaceutical industry monitorships and similar arrangements, such as the appointment of an IRO, result from the resolution of criminal or civil charges (or both) against a company. As the Principles of Federal Prosecution for Business Organizations instruct, a prosecutor deciding whether to file criminal charges against a company may take into account the ‘possibly substantial consequences [of indictment] to a corporation’s employees, investors, pensioners, and customers, many of whom may . . . have played no role in the criminal conduct’.^[2] Prosecutors are also to consider whether civil or regulatory enforcement actions, rather than criminal penalties, ‘would adequately deter, punish, and rehabilitate a corporation that has engaged in wrongful conduct’.^[3] In the case of pharmaceutical companies, criminal convictions could result in exclusion of that company from obtaining government contracts and payments from government programmes and, in the case of companies licensed by the DEA, a denial of registration by the agency. Should these exclusions or denials of registration occur, there is a high likelihood that the company in question would be forced out of business. It follows that if a company that manufactures or distributes prescription medicine is forced out of business, it would have a negative effect on the availability of medicines or patient services. In the case of manufacturers and distributors of life-saving controlled substances, the potential collateral consequences of a criminal conviction are devastating.

For these reasons, enforcement agencies and pharmaceutical companies strive to pursue settlements that fall short of criminal convictions. These resolutions instead include large financial penalties, require the companies to ensure continuing compliance with laws and regulations, and frequently impose monitors or IROs to accomplish regulators’ goals of corporate reform and continuing compliance.

The legal and historical context

The DEA enforces Titles II and III of the CSA, which creates a closed system for the distribution of controlled substances, including opioids. The CSA requires pharmaceutical manufacturers, distributors, retailers, hospitals and other persons seeking to legally handle controlled substances (DEA registrants) to register with the DEA. Pharmaceuticals manufacturers obtain raw materials and in turn produce and package prescription medications. Pharmaceutical distributors purchase prescription medicines and other medical products directly from pharmaceutical manufacturers and ship those medicines and products to a distributor’s downstream customers. State and federally licensed pharmacies, hospitals and healthcare providers place orders with distributors for the medicines and products they need, and the distributors process and deliver the orders daily.^[4] According to the Healthcare Distribution Alliance (a distribution industry association), 92 per cent of all prescription drug sales flow through pharmaceutical distributors to patients via hospitals, pharmacies, long-term care facilities and physicians’ offices.^[5]

Of the approximately US$450 billion in annual revenue generated in the pharmaceutical distribution industry, more than 90 per cent is concentrated in just three traditional full-line distributors: AmerisourceBergen, Cardinal Health and McKesson.^[6] The remaining 10 per cent of the market by revenue is represented by smaller pharmaceutical distribution companies, which generally service independent pharmacy customers, particular geographical regions or specific types of customers.^[7]

As with other healthcare industry monitorships, pharmaceutical industry monitorships – and similar arrangements such as mandatory independent audits or IROs – result from the settlement of a government investigation into a pharmaceutical company’s conduct. Enforcement agencies and pharmaceutical companies often pursue settlements on the understanding that a criminal conviction, licence revocation or exclusion from participation in federal healthcare programmes may put a company out of business. In the pharmaceutical distribution segment, a resolution that could force a smaller pharmaceutical distributor’s ultimate closure would probably serve to further consolidate an already highly consolidated market, and could have a detrimental effect on the availability and pricing of key medicines. Thus, civil or administrative corporate resolutions that include the imposition of a monitorship, and the potential criminal charges against individuals, are likely outcomes in healthcare fraud, misbranding or CSA cases in this industry segment.

The agency or agencies that negotiate a settlement determine the specific nature of any monitorship. As discussed below, the US Department of Health and Human Services Office of Inspector General (HHS-OIG) and the US DOJ have imposed pharmaceutical industry monitorships and similar arrangements in a variety of contexts, often as a result of coordinated investigations and settlement negotiations.

HHS-OIG enforcement actions

The HHS-OIG has the authority to seek civil monetary penalties and exclusion from federal health programmes for a wide range of prohibited conduct. HHS-OIG cases usually involve investigations of false and fraudulent claims to federal healthcare programmes, kickbacks in exchange for referrals of federal healthcare programme business and patient dumping.^[8] The HHS-OIG’s exclusion authority is powerful but its all-or-nothing nature limits its use, particularly when the collateral consequences of excluding an entity could reduce the availability of health products or services. In a 2012 interview, Gregory Demske, then the HHS-OIG’s assistant inspector general for legal affairs and now chief counsel to the inspector general, said:

We’ve been reluctant to exclude pharmaceutical companies because of the negative effects.

. . .

There’s the cost of disruption of supplying needed drugs to patients and there’s harm to innocent employees and shareholders and others . . . We have not excluded corporations when they have been convicted of offenses. The cases get resolved with criminal and civil resolutions and they enter into a CIA, or corporate integrity agreement.^[9]

In exchange for the company’s commitments under a corporate integrity agreement (CIA), the HHS-OIG agrees not to seek the company’s exclusion from participation in Medicare, Medicaid or other federal healthcare programmes.^[10] These CIAs may include a monitorship component, typically called an IRO. Unlike US DOJ deferred prosecution or non-prosecution agreements, in which the imposition of a monitorship historically has been the exception, a CIA’s inclusion of an IRO to monitor compliance with the CIA is the norm.^[11]

HHS-OIG IRO components are generally included as an appendix to a CIA. A typical IRO appendix establishes requirements for engaging the IRO, the IRO’s qualifications and the IRO’s responsibilities. The reviews envisioned by the IRO appendix are often detailed and discrete; although some appendices permit the IRO to conduct interviews, the IRO does not usually have the authority to conduct wide-ranging inquiries. Rather, the appendix tasks the IRO with answering specific questions or reviewing particular types of information. Each IRO appendix normally requires the IRO to conduct one or more systems reviews or one or more transaction reviews. A systems review requires an IRO to assess a company’s systems, policies, processes and procedures for complying with specific regulatory expectations. A transaction review requires an IRO to assess whether a randomly selected number of transactions were conducted in accordance with the company’s policies and procedures.

The vast majority of pharmaceutical companies currently subject to an HHS-OIG CIA entered into the agreement to settle potential healthcare fraud violations.^[12] IRO system reviews in these CIAs cover a company’s policies for issues such as the dissemination of products subject to reimbursement under a federal healthcare programme, compensation incentives to sales representatives and payments to healthcare professionals.^[13] IRO transaction reviews for CIAs have involved, for example, a sample of 50 payments to physicians, 15 speaker fee arrangements or a review of a company’s internal audit of its compliance with applicable healthcare laws.^[14]

Although there have been several HHS-OIG settlements with DEA-registered pharmaceutical companies – both distributors and manufacturers – the primary allegations in those cases have been the more common accusations of fraudulent reimbursement or Food, Drug, and Cosmetic Act misbranding.

Currently, there is only one settled case between the HHS-OIG and a pharmaceutical company in which an IRO was appointed as a result of alleged violations of the CSA. In 2015, PharMerica, a national company that operates pharmacies in nursing homes, negotiated an US$8 million civil settlement with the US DOJ and the HHS-OIG resulting in part from its alleged filings of fraudulent claims to Medicare and Medicaid, but also from its alleged violations of the CSA.^[15] Specifically, the government alleged that PharMerica pharmacies operating across the country routinely dispensed Schedule II controlled drugs in non-emergency situations without first obtaining a written prescription from a treating physician. According to the complaint, PharMerica’s alleged actions violated the CSA by enabling nursing home staff to order narcotics, and pharmacists to dispense them, without confirming that a physician had made a medical judgement as to whether the narcotics were necessary and should be administered to the patient.^[16]

In addition to the financial penalty, PharMerica entered into a CIA with the HHS-OIG, which required an IRO to carry out a transaction review of a sample of Schedule II controlled substance prescriptions to determine whether they were dispensed in accordance with the CSA, as well as to determine whether the company received any overpayment from a federal healthcare programme in connection with the sampled prescriptions.^[17] If sampling demonstrated that 5 per cent or more of the prescriptions were dispensed other than in accordance with the CSA, the IRO was empowered to conduct a review of the company’s systems and processes for dispensing Schedule II controlled substances.^[18]

Administrative and enforcement actions

The DEA’s Office of Diversion Control is responsible for ensuring that controlled substances remain within the closed distribution system and that drugs such as opioids are transferred between licensed DEA registrants and patients based only on a legitimate medical need as evidenced by a valid prescription. The DEA has the authority to bring an administrative action against any DEA registrant that transfers a controlled substance outside that closed system or for other violations of the CSA. The DEA has the exclusive authority to negotiate and settle administrative actions where the relief sought is equitable and a licence suspension or revocation is sought. If the DEA seeks monetary relief for violations of the CSA, or believes that a registrant has committed crimes, the US DOJ will take over the prosecution and eventual resolution of those cases.

As with the HHS-OIG, the DEA, acting in partnership with the US DOJ, frequently negotiates settlements with its registrants to resolve investigations into potential violations of the CSA. Prior to the opioid crisis in the United States, the vast majority of settlements with DEA-registered pharmaceutical companies included a civil monetary penalty and a written compliance agreement with the DEA called a Memorandum of Agreement (MOA). These resolutions generally did not involve an independent monitor.

For example, in 2008, US Attorney’s Offices in seven districts negotiated an agreement with Cardinal Health resulting from the company’s alleged failure to comply with its obligations to prevent diversion of controlled substances by failing to identify and report pharmacy customer orders of unusual size, pattern or frequency (in other words, suspicious orders).^[19] Cardinal Health agreed to pay a US$34 million penalty and entered into an MOA with the DEA in which it agreed to certain enhancements to its anti-diversion compliance programme, particularly in relation to suspicious order reporting. Similarly, in 2008, McKesson, the largest US pharmaceutical distributor by revenue, entered into a comparable agreement with six US Attorney’s Offices, in which the company agreed to pay US$13 million in penalties and to adhere to certain compliance obligations outlined in an MOA.^[20] In 2013, Walgreens (a pharmacy store chain) agreed to pay US$80 million to settle allegations by the US DOJ that the company’s pharmaceutical distribution processes did not fully comply with the CSA.^[21] Walgreens also entered into an MOA with the DEA, in which the company agreed to adhere to robust compliance terms dictated by the DEA.^[22] In none of these cases, however, did the US DOJ or the DEA impose a monitor in connection with alleged violations of the CSA.^[23]

In the context of the continuing opioid addiction crisis and the significant public attention devoted to it, the US DOJ has required the appointment of a monitor or IRO in more recent cases involving DEA-registered pharmaceutical companies. Specifically, in a 2017 settlement with McKesson Corporation, the US DOJ imposed an IRO. In its 2019 settlement with the Rochester Drug Co-operative, Inc, one of the 10 largest pharmaceutical distributors in the United States, the US DOJ required a monitor. In addition, the US DOJ required a monitor for Practice Fusion, a health data company that accepted US$1 million from a pharmaceutical company in exchange for pushing electronic alerts that encouraged practitioners to prescribe opioids manufactured by the pharmaceutical company. These cases are discussed further below.

McKesson Corporation IRO

In early 2017, the US DOJ and the DEA jointly announced the settlement with McKesson Corporation of potential CSA violations concerning an alleged failure to report suspicious orders.^[24] The McKesson IRO was billed as ‘the first independent monitor of its kind in a CSA civil penalty settlement’.^[25] It involved a civil settlement with 12 US Attorney’s Offices and an administrative settlement, evidenced by an MOA with the DEA. Both the civil and administrative documents accuse McKesson of failing to maintain effective controls against the diversion of controlled substances. In addition, the settlement documents accuse McKesson of failing to meet its obligations under both the CSA and a prior 2008 settlement with the US DOJ and the DEA, in which McKesson agreed to comply with its obligations to detect and report suspicious orders.

McKesson agreed to pay US$150 million and to a rolling suspension of its DEA registrations at four distribution centres for periods ranging from one to three years each.^[26] McKesson also agreed to additional compliance obligations explicitly set forth in the MOA with the DEA and agreed to engage an IRO to monitor its continued compliance with the law. The term of the IRO was five years; however, the agreement allowed McKesson to seek permission to self-monitor for the last two years of the review.

The structure of the McKesson IRO closely resembles HHS-OIG IRO structures in respect of both selection process and substantive review. The written settlement documents establish both requirements for the qualifications and selection of the IRO and the IRO’s reporting requirements. Substantively, the McKesson IRO was tasked with performing four discrete reviews of sample transactions or files. For example, the settlement required the IRO to assess whether McKesson adequately documented customer threshold change requests, the onboarding process and a sample of event-triggered due diligence processes. The IRO was also required to evaluate the process of compensating personnel in McKesson’s regulatory affairs department. Finally, the IRO was tasked with reviewing the parameters of the system used to calculate thresholds for McKesson’s independent retail pharmacy customers. The IRO was permitted to conduct interviews with personnel if questions arose in the review of the sampled transactions, and was also permitted to comment on any other compliance issues it noted. The IRO was required to file annual reports with McKesson; these reports were attached to McKesson’s own annual reports to the DEA.

Key aspects of the McKesson IRO differ from the HHS-OIG model. Uniquely, the McKesson IRO is required to report to the company, not directly to the DEA or the US DOJ. And whereas many HHS-OIG CIAs merely grant the HHS-OIG the right to reject a company’s chosen IRO, McKesson’s agreement outlined a selection process identical to those laid out in other US DOJ monitorships. Specifically, the US DOJ and the DEA selected the IRO from the qualified candidates proposed by McKesson.^[27] And whereas many HHS-OIG IROs are tasked with conducting arm’s-length reviews based solely on transactional documents, the McKesson settlement, like a traditional US DOJ monitorship, permitted the IRO to conduct interviews with members of McKesson’s regulatory affairs department if questions arose about transactions being sampled.^[28] Although the ability to conduct interviews was similar to powers accorded to a typical US DOJ-imposed monitor, the scope of the McKesson IRO’s interview powers was limited solely to McKesson’s decisions about the aforementioned specific transactional samples.

Rochester Drug Co-operative monitorship

In April 2019, the US DOJ and the DEA jointly announced criminal charges against Rochester Drug Co-operative, Inc (RDC), then one of the 10 largest pharmaceutical distributors in the United States.^[29] Announcing that the prosecution was the first of its kind, the US DOJ filed criminal charges against RDC, under the statute normally reserved for street drug traffickers.^[30] In its press release, the US DOJ claimed: ‘RDC supplied large quantities of oxycodone, fentanyl, and other dangerous opioids to pharmacy customers that its own compliance personnel determined were dispensing those drugs to individuals who had no legitimate medical need for them.’^[31] The US DOJ also charged RDC with conspiracy to defraud the DEA by misrepresenting the company’s due diligence practices and controls against diversion, and by knowingly failing to report suspicious orders from the company’s pharmacy customers.^[32]

To settle the charges, RDC entered into a deferred prosecution agreement (DPA) in which it admitted the charged conduct, agreed to a U$20 million penalty and entered into a compliance addendum requiring RDC to strengthen its procedures and systems for conducting due diligence on pharmacy customers, and for identifying and reporting suspicious orders of controlled substances.^[33] The DPA called for RDC, among other things, to establish a compliance committee and to appoint two independent directors to this committee who were experts in controlled substance law and compliance. RDC was also required to retain an independent compliance monitor to oversee the company’s fulfilment of its compliance obligations.^[34]

The RDC monitorship is similar to a standard US DOJ monitorship, in that the company proposes candidates and US DOJ makes the final selection.^[35] The term of the monitorship is three years.^[36] The duties of the monitor are as broad as seen in more common monitorships under the US Foreign Corrupt Practices Act. Among other things, the RDC monitor must (1) evaluate the effectiveness of RDC’s processes, procedures and programmes to ensure compliance with the CSA; (2) assess whether RDC complies with its processes, procedures and programmes, and with the reporting requirements of the CSA in respect of preventing diversion; (3) assess the qualifications of new RDC compliance employees; and (4) assess the commitment of RDC’s board of directors and senior management to compliance.^[37]

The RDC monitor has ‘authority to take such reasonable steps as . . . may be necessary to fulfill the [m]andate’ and RDC is required to grant the monitor access to the company’s information, documents, records, facilities and employees.^[38] In addition, the monitor is required to recommend ‘tasks and efforts’ that RDC should implement to ensure the fulfilment of the company’s compliance obligations under its settlement agreement.^[39] The monitor is also tasked with periodically reporting to the US DOJ on RDC’s progress in implementing the monitor’s recommendations and any violations of the CSA that the monitor discovers.^[40]

In addition to the monitor’s mandate, RDC itself was required to enhance significantly its compliance processes and governance structures. These terms, too, are reminiscent of a typical US DOJ monitorship agreement. For example, RDC is required to design and implement improved procedures and systems designed to meet the company’s compliance obligations under the CSA. Of particular note is a requirement that RDC ‘shall suspend . . . distribution of controlled substances’ to any pharmacy customer for which RDC has identified a possible indicator of diversion (red flag), unless and until RDC has specific and articulable facts that resolve the red flag.^[41] This goes far beyond what the CSA itself requires. The process of resolving a red flag is likely to be time-consuming and detail-oriented. It is not unrealistic to think that pausing shipments while investigating red flags, combined with a monitor’s independent assessment of each individual order to which these obligations might apply, could quickly bring the company’s operations to a halt. Perhaps for that reason, the RDC settlement agreement contains a provision that permits RDC to notify the monitor of any material provision in the compliance addendum that the company believes is ‘unduly burdensome’ and to propose an alternative approach to achieve the same objective.^[42] This flexibility is quite unusual in a typical monitorship agreement.^[43]

In 2020, RDC failed to make its first instalment payment on the forfeiture order, and shortly thereafter filed for bankruptcy. The company ceased distributing controlled substances in March 2020 and subsequently closed.^[44]

Practice Fusion oversight organisation

In early 2020, the US DOJ settled criminal and civil charges with Practice Fusion, a health information technology developer, for its role in soliciting and receiving kickbacks from a manufacturer of opioids to influence patient treatment decisions. While not itself a pharmaceutical company, Practice Fusion admitted to manipulating its electronic health records software to influence physicians to prescribe a particular company’s opioids more frequently than the physicians might otherwise have done. Specifically, Practice Fusion admitted that it extracted a US$1 million ‘sponsorship’ payment from a major manufacturer of opioids in return for pushing electronic alerts to Practice Fusion’s prescriber customers with the goal of causing the prescribers to increase prescriptions for the manufacturer’s extended-release opioid products. Practice Fusion entered into a DPA with the US DOJ and agreed to pay a total of more than US$26 million in criminal fines and forfeitures. In addition, Practice Fusion separately settled civil claims that it submitted false claims to federal healthcare programmes tainted by the kickback schemes in which Practice Fusion admitted that it had engaged.^[45]

As part of the resolution, Practice Fusion entered into a compliance addendum that sets forth a number of stringent compliance obligations for the company regarding its organisational structure and the process and substance of clinical decision support alerts it pushes to prescribers through its electronic health records system.^[46] The company was also required to retain an oversight organisation that is tasked with reviewing and approving any sponsored clinical decision support alerts before Practice Fusion implements them, and with creating a comprehensive compliance programme to prevent a recurrence of the prior conduct.^[47]

The Practice Fusion oversight organisation’s structure and mandate closely follow those of the RDC monitor, with two notable differences. First, whereas the RDC monitor is tasked with making recommendations about how RDC can comply with its compliance obligations, the Practice Fusion oversight organisation must affirmatively approve or disprove certain support alerts relating to health treatments.^[48] Second, Practice Fusion is under more strongly prescribed requirements to follow its oversight organisation’s recommendations. Specifically, the oversight organisation is required to make recommendations that Practice Fusion ‘shall adopt and implement’ unless the company convinces the oversight organisation and the US Attorney’s Office that a recommendation is ‘unduly burdensome, inconsistent with applicable law or regulation, impractical, or otherwise inadvisable’ and Practice Fusion proposes an alternative recommendation to achieve the same objective or purpose.^[49]

The opioid civil lawsuits and monitorships

Beginning in 2017, state and local governments, hospital systems and a number of Native American tribes began filing civil lawsuits seeking damages and injunctive relief from defendants across the pharmaceutical supply chain. Ultimately, more than 3,000 lawsuits were consolidated in a single multi-district litigation in the Northern District of Ohio (the MDL).^[50] These lawsuits were fiercely litigated, but many of the manufacturer and distribution company parties announced comprehensive, global settlement agreements in July 2021. The settlements reached by the major pharmaceutical distribution companies and the majority of state attorneys general call for the payment of more than US$26 billion and include an in-depth injunctive relief section requiring each of the distribution companies to commit to extensive order and customer monitoring and reporting. An independent monitor will oversee the distributors’ compliance with the obligations set forth in the settlement for a five-year term.^[51]

In addition to the monitor requirement in the MDL distributor settlement, courts have appointed monitors for two pharmaceutical manufacturers, Purdue Pharma^[52] and Mallinckrodt,^[53] in connection with those companies’ respective bankruptcy petitions. Specifically, both companies agreed with their creditors to a broad range of injunctive relief concerning order and customer monitoring and reporting, as well as marketing limitations, while the bankruptcies are pending. The monitor selection process and the list of monitor responsibilities in both bankruptcy petitions largely mirror the 2015 McKesson IRO and the MDL distributor settlement.

The future of US DOJ pharmaceutical monitorships

The US DOJ’s Prescription Interdiction and Litigation Task Force and recent enforcement actions suggest that the US DOJ is less likely than ever to allow a pharmaceutical company to simply pay a fine and walk away from a charged CSA violation. Although the US DOJ is well equipped to investigate, prosecute or settle violations of the CSA, it does not have the resources to enforce and continuously assess the numerous and, at times, technical compliance terms agreed as part of a corporate settlement. Thus, the US DOJ is unlikely to abandon the incorporation of monitorships into DPAs or non-prosecution agreements with pharmaceutical companies.

This fact is reinforced by the US DOJ’s revised stance broadly favouring the imposition of monitors. On 28 October 2021, Deputy Attorney General of the US DOJ Lisa Monaco announced that, for companies negotiating resolutions with the US DOJ, ‘there is no default presumption against corporate monitors’.^[54] A memorandum Monaco issued the same day (the Monaco Memorandum) rescinds and supersedes portions of an 11 October 2018 memorandum issued by the Assistant Attorney General of the US DOJ’s Criminal Division (the Benczkowski Memorandum).^[55] Whereas the Benczkowski Memorandum called upon the US DOJ to impose a monitor ‘only where there is a demonstrated need’, the Monaco Memorandum states that the US DOJ ‘should favour the imposition of a monitor where there is a demonstrated need for, and clear benefit to be derived from, a monitorship’.^[56]

Costs remain an important factor in US DOJ decisions to impose a monitor. The Monaco Memorandum calls on US DOJ attorneys to consider ‘the cost of a monitor and its impact on the operations of a corporation’. In both the Practice Fusion and RDC DPAs, the US DOJ required monitors to take an active role in approving or disproving a monitored company’s operational decisions. The monetary and operational expense of such close involvement by a monitor in a company’s daily decisions is significant. Under the Monaco Memorandum, the US DOJ must weigh those costs against the potential benefits a monitor may provide to the company and the public. High costs thus may be warranted when the US DOJ considers that a company’s ability to remediate independently is limited. Conversely, a monitor with a more proscribed mandate, for example in the form of a review of a randomly selected sample of transactions, may cost significantly less, and may be appropriate when the underlying misconduct is less severe, or the benefit that a monitor brings to the company or the public is smaller.

Conclusion

The practice of imposing monitorships on pharmaceutical companies settling alleged or admitted violations of the CSA is still new. Both the unique aspects of the CSA and the complexity of the technical systems used by pharmaceutical companies to comply with the CSA set a CSA-related monitorship apart from a more standard US DOJ-imposed monitorship in an anti-corruption setting. A person or organisation experienced with both the pharmaceutical industry and the government is well equipped to serve as a monitor. Although the current number of persons so qualified may be limited, lawyers involved in the thousands of cases stemming from the opioid crisis are fast gaining experience that would make them suitable for future CSA-related monitorships, if and when the DEA and the US DOJ impose them.

Endnotes

^[1] Jodi Avergun is a partner and chair and Christian Larson is an associate at Cadwalader, Wickersham & Taft LLP. The authors thank Todd Blanche, former partner at Cadwalader, Wickersham & Taft LLP, for his assistance in the preparation of this chapter.

^[2] See US Department of Justice (US DOJ), Justice Manual, Title 9, Principles of Federal Prosecution of Business Organizations, 9-28.1100.

^[3] See Principles of Federal Prosecution of Business Organizations, Justice Manual 9-28.1200.

^[4] Healthcare Distribution Alliance (HDA), ‘Pharmaceutical Distributors: Understanding Our Role in the Supply Chain’, at https://www.hda.org/~/media/pdfs/communications/hda-wsj -ad-final.ashx?la=en (last accessed 28 Feb. 2022).

^[5] Deloitte and HDA, 2019 Report, ‘The role of distributors in the US health care industry’, at https://www.hda.org/~/media/pdfs/publications/hda-role-of-distributors-in-the-us-health -care-industry.ashx (last accessed 28 Feb. 2022).

^[6] id.

^[7] id.

^[8] US Department of Health and Human Services Office of Inspector General (HHS-OIG), ‘About Enforcement Actions’, at https://oig.hhs.gov/fraud/enforcement/about (last accessed 9 Mar. 2022).

^[9] ExpertBriefings.com, ‘The OIG And Excluding Execs: Demske Explains’ (7 Jun. 2011), at www.expertbriefings.com/news/the-oig-and-excluding-execs-demske-explains/ (last accessed 28 Feb. 2022).

^[10] HHS-OIG, ‘Corporate Integrity Agreements’, at https://oig.hhs.gov/compliance/ corporate-integrity-agreements/index.asp (last accessed 28 Feb. 2022).

^[11] id. (‘A comprehensive CIA typically lasts 5 years and includes requirements to . . . retain an independent review organization to conduct annual reviews.’); see also Corporate Prosecution Registry, at https://corporate-prosecution-registry.com/browse/ (last accessed 15 Mar. 2022) (data shows that approximately 17 per cent of US DOJ deferred prosecution and non-prosecution agreements executed between 1992 and 2022 included an independent monitor).

^[12] HHS-OIG, Corporate Integrity Agreement Documents, at https://oig.hhs.gov/compliance/corporate-integrity-agreements/cia-documents.asp (last accessed 28 Feb. 2022).

^[13] See, e.g., ‘Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Aegerion Pharmaceuticals, Inc.’ (22 Sep. 2017), at https://oig.hhs.gov/fraud/cia/agreements/Aegerion_Pharmaceuticals _Inc_09222017.pdf (last accessed 28 Feb. 2022).

^[14] id.; see also ‘Addendum to the Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Novartis Pharmaceuticals Corporation’ (19 Nov. 2015), at https://www.pharma.us.novartis.com/sites/www.pharma.us.novartis.com/files/cia_addendum.pdf; ‘Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and AmerisourceBergen Corporation’ (28 Sep. 2018), at https://oig.hhs.gov/fraud/cia/agreements/AmersourceBergen_Corporation_09282018.pdf (websites last accessed 28 Feb. 2022).

^[15] US DOJ, Justice News, ‘Long-Term Care Pharmacy to Pay $31.5 Million to Settle Lawsuit Alleging Violations of Controlled Substances Act and False Claims Act’ (14 May 2015), at https://www.justice.gov/opa/pr/long-term-care-pharmacy-pay-315-million-settle-lawsuit -alleging-violations-controlled (last accessed 28 Feb. 2022).

^[16] Complaint for Damages and Injunctive Relief under the False Claims Act, United States ex rel. Denk v. PharMerica Corp. (22 July 2009), No. 09-cv-720 (E.D. Wis.).

^[17] ‘Corporate Integrity Agreement between the Inspector General of the Department of Health and Human Services and PharMerica Corporation’, at Appendix B, Section 2 (11 May 2015), available at https://www.aapc.com/codes/webroot/upload/general_pages_docs/document/PharMerica_05112015.pdf (last accessed 15 Mar. 2022).

^[18] id.

^[19] US Attorney’s Office (Colorado), News, ‘Cardinal Health Inc., Agrees to Pay $34 Million to Settle Claims that it Failed to Report Suspicious Sales of Widely-Abused Controlled Substances’ (2 Oct. 2018), at https://www.justice.gov/archive/usao/co/news/2008/October08/10_2_08.html (last accessed 28 Feb. 2022).

^[20] US DOJ, Press release, ‘McKesson Corporation Agrees to Pay More than $13 Million to Settle Claims that it Failed to Report Suspicious Sales of Prescription Medications’ (2 May 2008), at https://www.justice.gov/archive/opa/pr/2008/May/08-opa-374.html; Drug Enforcement Administration, ‘Settlement and Release Agreement and Administrative Memorandum of Agreement’ (2 May 2008), at https://www.dea.gov/sites/default/files/2018-06/Pharmaceutical%20Agreements%20-%20McKesson%20-%202008_0.pdf (websites last accessed 28 Feb. 2022).

^[21] US Attorney’s Office (Southern District of Florida), ‘Walgreens Agrees to Pay a Record Settlement of $80 Million For Civil Penalties Under the Controlled Substances Act’ (11 Jun. 2013), at https://www.justice.gov/usao-sdfl/pr/walgreens-agrees-pay-record -settlement-80-million-civil-penalties-under-controlled (last accessed 28 Feb. 2022).

^[22] Settlement and Memorandum of Agreement between the US DOJ and Walgreen Co (10 Jun. 2013), at https://www.justice.gov/sites/default/files/usao-sdfl/legacy/2013/ 06/19/130611-01.WalgreensMOA%26Addendum.pdf (last accessed 28 Feb. 2022).

^[23] Note, however, that in 2005, the Drug Enforcement Administration (DEA), the US Attorney’s Offices for the Eastern District of Texas and the Eastern, Northern and Western Districts of Oklahoma, and the Oklahoma Bureau of Narcotics and Dangerous Drugs resolved a civil enforcement action against Walgreen Co stemming from compliance failures relating to pseudoephedrine distribution. A DEA press release references the appointment of an independent monitor of Walgreen Co stores in Oklahoma and the Eastern District of Texas. See Drug Enforcement Administration, News release (8 Aug. 2005), at https://www.dea.gov/sites/default/files/pubs/states/newsrel/dallas080805.html (last accessed 28 Feb. 2022). However, neither the details of the settlement nor the monitor’s duties and reports are public information.

^[24] US DOJ, Justice News, ‘McKesson Agrees to Pay Record $150 Million Settlement for Failure to Report Suspicious Orders of Pharmaceutical Drugs’ (17 Jan. 2017), at https://www.justice.gov/opa/pr/mckesson-agrees-pay-record-150-million-settlement-failure-report -suspicious-orders; Drug Enforcement Administration, ‘Largest Settlement In DEA History: McKesson Pays $150 Million’ (17 Jan. 2017), at https://www.dea.gov/press -releases/2017/01/17/largest-settlement-dea-history-mckesson-pays-150-million (websites last accessed 28 Feb. 2022).

^[25] Drug Enforcement Administration, ‘Largest Settlement In DEA History: McKesson Pays $150 Million’, op. cit. note 24, above.

^[26] Administrative Memorandum of Agreement between the Drug Enforcement Agency and McKesson Corporation (17 January 2017) at Section II.1, at https://www.justice.gov/opa/press-release/file/928476/download (last accessed 28 Feb. 2022).

^[27] See, e.g., ‘Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and PharMerica Corporation’ (op. cit. note 17, above) at Appendix A, Sections A.1, A.2; see also ‘Compliance Addendum to the Administrative Memorandum of Agreement between the Drug Enforcement Agency and McKesson Corporation’ (17 Jan. 2017) at Section IV.A, at https://www.justice.gov/opa/press -release/file/928481/download (last accessed 28 Feb. 2022).

^[28] See ‘Compliance Addendum to the Administrative Memorandum of Agreement between the Drug Enforcement Agency and McKesson’, op. cit. note 27, above, at Section V.A.

^[29] US Attorney’s Office for the Southern District of New York (SDNY), ‘Manhattan U.S. Attorney And DEA Announce Charges Against Rochester Drug Co-Operative And Two Executives For Unlawfully Distributing Controlled Substances’ (23 Apr. 2019), at https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-and-dea-announce-charges-against-rochester-drug -co-operative-and (last accessed 28 Feb. 2022).

^[30] id.; US Attorney’s Office (SDNY), ‘Re: Rochester Drug Co-operative – Deferred Prosecution Agreement’ (22 Apr. 2019), Information at ¶¶ 20–22, at https://www.justice.gov/usao-sdny/press-release/file/1156381/download (last accessed 28 Feb. 2022).

^[31] US Attorney’s Office (SDNY), ‘Manhattan U.S. Attorney And DEA Announce Charges Against Rochester Drug Co-Operative And Two Executives For Unlawfully Distributing Controlled Substances’, op. cit. note 29, above.

^[32] US Attorney’s Office (SDNY), ‘Re: Rochester Drug Co-operative – Deferred Prosecution Agreement’, op. cit. note 30, above, Information, Exhibit B at ¶ 24.

^[33] ibid., at 1, 7; id. at Compliance Addendum, Exhibit D at ¶¶ 5 and 6.

^[34] ibid. at Independent Compliance Monitor Mandate, Exhibit E at ¶ 1.

^[35] ibid., at ¶ 2.

^[36] ibid., at ¶ 1.

^[37] ibid., at ¶ 3.

^[38] ibid., at ¶¶ 3, 8.

^[39] ibid., at ¶¶ 3, 4.

^[40] ibid., at ¶¶ 5, 11.

^[41] US Attorney’s Office (SDNY), ‘Re: Rochester Drug Co-operative – Deferred Prosecution Agreement’, op. cit. note 30, above, Compliance Addendum, Exhibit D at ¶ 5.

^[42] ibid., at Compliance Addendum, Exhibit D at ¶ 11.

^[43] Note, however, the similar language in the Practice Fusion Compliance Addendum discussed below.

^[44] In re: Rochester Drug Cooperative, Inc., No. 2-20-20230-PRW (WDNYB, 12 Mar. 2020), ECF No. 1. A federal jury found the company’s chief executive officer, Laurence Doud, guilty of illegal distribution of controlled substances in February 2022. USA v. Doud, No. 1:19-cr-00285 (SDNY, 22 Apr. 2019), jury verdict filed 3 Feb. 2022.

^[45] US DOJ, Justice News, ‘Electronic Health Records Vendor to Pay $145 Million to resolve Criminal and Civil Investigations’ (27 Jan. 2020), at https://www.justice.gov/ opa/pr/electronic-health-records-vendor-pay-145-million-resolve-criminal-and-civil -investigations-0 (last accessed 28 Feb. 2022).

^[46] Compliance Addendum, USA v. Practice Fusion, Inc., No. 2:20-cr-00011-wks (D. Vt, 27 Jan. 2020), ECF No. 2-5.

^[47] ibid., at Section 8.

^[48] Rochester Drug Co-operative – Deferred Prosecution Agreement, op. cit. note 30, above, Independent Compliance Monitor Mandate, Exhibit E at ¶ 3; see also Compliance Addendum, USA v. Practice Fusion, Inc., op. cit. note 46, above, at Section 8.

^[49] Compliance Addendum, USA v. Practice Fusion, Inc., op. cit. note 46, above, at ¶ 6.

^[50] National Prescription Opiate Litigation, No. 1:17-MD-2804 (Northern District of Ohio, 12 Dec. 2017, ECF No. 1).

^[51] See, e.g., Distributor Settlement Agreement (announced 21 Jul. 2021) at Section XVIII, at https://www.attorneygeneral.gov/wp-content/uploads/2021/07/2021-07-21-Final -Distributor-Settlement-Agreement.pdf (last accessed 28 Feb. 2022).

^[52] In re: Purdue Pharma L.P., Case No. 19-08289-rdd (SDNYB, 6 Nov. 2019), Voluntary Injunction at ECF No. 105, Appendix 1.

^[53] In re: Mallinckrodt PLC, Case No. 20-12522-jtd (DDEB, 12 Oct. 2020), Voluntary Injunction at ECF No. 2, Exhibit A; id, Order Granting the Debtors’ Motion for Injunctive Relief at ECF No. 170.

^[54] US DOJ, ‘Deputy Attorney General Lisa O. Monaco Gives Keynote Address at ABA’s 36th National Institute on White Collar Crime’ (28 Oct. 2021), at https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th -national-institute (last accessed 28 Feb. 2022).

^[55] US DOJ, Memorandum from Deputy Attorney General Lisa O Monaco, ‘Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies’ (28 Oct. 2021), at https://www.justice.gov/dag/page/file/1445106/download; US DOJ, Memorandum from Brian A Benczkowski, ‘Selection of Monitors in Criminal Division Matters’ (11 Oct. 2018) (Benczkowski Memorandum), at Section A, at https://www.justice.gov/opa/speech/file/1100531/download (websites last accessed 28 Feb. 2022).

^[56] Benczkowski Memorandum, op. cit. note 55, above.