CHAPTER §7.04 Area of Government Interest: The Controlled Substances Act
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§7.04 Area of Government Interest: The Controlled Substances Act
The Controlled Substances Act ("CSA" or the "Act"), 21 U.S.C. § 801 et seq., is the primary federal law that regulates the manufacturing, distribution, and use of controlled substances that have a detrimental effect on public health and welfare.141 In recent years, the CSA has become a particularly prominent government-enforcement tool to combat the opioid crisis.
The Drug Enforcement Administration ("DEA") within DOJ has actively exercised its authority under the CSA to monitor and prevent the use and abuse of highly addictive prescription opioids, such as oxycodone, hydrocodone, and fentanyl.142 Specifically, the DEA and DOJ have brought enforcement actions against manufacturers and distributors seeking accountability for the diversion of controlled substances.143 As recent settlements indicate, the DEA has paid particular attention to the failure of opioid manufacturers and distributors to implement Suspicious Order Monitoring Systems ("SOMS"), which trigger civil and criminal liability.144
The following sections briefly summarize the CSA's statutory framework and reporting requirements, as well as recent governmental enforcement actions against corporate defendants.
[1] Statutory Overview and Regulatory Scheme
The CSA creates a "closed system" in which manufacturers, distributors, and dispensers of controlled substances must register and comply with federal standards.145 Controlled substances are defined as "drugs that have a currently accepted medical use in the United States, but also a high potential for abuse and may lead to severe psychological or physical dependence."146 The closed system promotes accountability over each controlled substance from the time that the controlled substance is manufactured until it reaches the patient.147 To do so, the CSA categorizes controlled substances into one of five schedules, requires any person or entity who handles (or intends to handle) controlled substances to register with the DEA, and requires registrants to report suspicious orders.148
[a] Schedules
The CSA separates controlled substances into schedules according to their: (1) potential for abuse; (2) accepted medical use; and (3) safety and potential for addiction.149 Given their unique qualities, each category is regulated differently.150 Controlled substances may be added, removed, or transferred from one schedule to another through federal rulemaking procedures.151
Schedule II152 includes opioids, such as oxycodone, fentanyl, and hydrocodone.153 Schedule II controlled substances have medical use as pain relievers, but they have a high potential for abuse and can cause severe physical and mental addiction.154 Manufacturers, distributors, and dispensers of Schedule II controlled substances must comply with CSA registration and reporting requirements.
[b] Registration
The CSA mandates every person and entity who manufactures, distributes, dispenses, imports, or exports any controlled substance (or who proposes to engage in such activities) to obtain a registration from the DEA,155 unless they are exempt.156 A separate registration is required for each physical facility that manufacturers, distributes, dispenses, imports, or exports controlled substances.157
[c] Compliance Systems
The CSA also requires registrants to establish systems that prevent the theft and diversion of controlled substances.158 The DEA evaluates these systems for compliance with enumerated physical and security controls.159
Namely, registrants must operate a SOMS that detects suspicious orders of controlled substances.160 The CSA defines suspicious orders as "orders of unusual size, orders deviating substantially from normal pattern, and orders of unusual frequency."161 Registrants must report these suspicious orders to the DEA.162 Although it was previously part of the regulatory scheme, Congress codified the SOMS requirement in December 2018.163
The DEA uses the information to identify controlled substances that are illegally diverted from distribution channels and spurs drug abuse, addiction, overdose, and death.164 Thus, the reporting requirement is essential to the CSA's enforcement mechanism. The DEA may coordinate with the DOJ to bring an enforcement action against registrants who fail to meet their reporting obligations and impose civil or criminal penalties.165
[2] Government Enforcement of the Reporting Requirement
The DEA, in collaboration with the DOJ, has commenced efforts to combat the opioid crisis by exercising its authority under the CSA to aggressively investigate and bring enforcement actions against any registered manufacturer, distributor, pharmacy, or doctor who fails, negligently or intentionally, to prevent the diversion of controlled substances.166 The federal government identifies these failures as one cause of the opioid crisis.167 Recent enforcement actions against manufacturers and distributors have ended in settlements involving severe civil monetary penalties and oversight arrange-ments.168 The more egregious cases have also included criminal indictments.169
[a] Morris & Dickson Co. LLC (M&D)
The Morris & Dickson Co. LLC ("M&D") matter is a straightforward example of the enforcement actions brought by the DEA and the DOJ. M&D was one of the nation's largest wholesale-pharmaceutical distributors of hydrocodone and oxycodone.170 The DOJ alleged that between January 2014 and September 2017 M&D violated the CSA because it failed to report suspicious orders dispensed to customers of retail pharmacies.171 In May 2019, M&D settled the allegations by paying $22 million in civil penalties, agreeing to developing new protocols consistent with federal standards, and hiring additional staff.172
[b] McKesson
McKesson was one of the nation's largest distributors of oxycodone and hydrocodone pills to independent and small chain pharmacies.173 The DOJ alleged that from 2008 until 2013 McKesson violated the CSA because it failed to design and implement an effective system to detect and report suspicious orders to the DEA.174 Additionally, the DOJ alleged that McKesson failed to fully implement an SOMS that was part of the terms from an earlier settlement the company had entered with DOJ in 2008.175 In 2017, McKesson settled the allegations by paying $150 million in civil penalties, suspending the distribution of controlled substances from its distribution centers in four states for multiple years, and agreeing to more rigorous compliance standards for 5 years, which includes independent monitoring.176
[c] Mallinckrodt LLC
The DEA and DOJ also hold manufacturers accountable for the subsequent diversion of controlled substances by their customer's customers. Mallinckrodt LLC ("Mallinckrodt") was one of the nation's largest manufacturers of generic oxycodone pills.177 The DOJ alleged that between 2008 and 2011 Mallinckrodt violated the CSA by failing to report suspicious orders of oxycodone to the DEA.178 Specifically, the DOJ claimed that Mallinckrodt filled suspicious orders of oxycodone to distributors—who then supplied pharmacies and clinics—with an "increasingly excessive quantity" of oxycodone without alerting the DEA.179 The DOJ also alleged that Mallinckrodt failed to maintain proper batch records because of discrepancies between the recorded and actual numbers of...
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