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DEA Enforcement Actions: A Year in Review

Health Law Update Larry P. Cote

The Drug Enforcement Administration (DEA) continued to be very active in 2012 with respect to enforcement actions against DEA registrants. While the Agency initiated fewer administrative actions in FY2012 than in FY2011[1], the DEA nonetheless continued its enforcement-first approach in dealing with the regulated industry. This trend will not abate in the coming years. At a recent conference, Joseph Rannazzisi, Deputy Assistant Administrator, Office of Diversion Control, in response to the characterization of the Agency's enforcement actions in 2012 as "aggressive," stated, "[W]e don't feel that we are that aggressive. If you think we are aggressive now, good God, you don't know what's coming next year."

In 2012, the Agency's most publicized investigations involved the DEA's continued focus on eradicating rogue pain clinics and the pharmacies that service them. In doing so, the DEA took unprecedented actions against major retail chain pharmacies and their distribution facilities. The DEA also began to exert significant pressure up the supply chain, targeting controlled substance distributors and manufacturers. These actions will have a substantial impact on retail pharmacy operations in 2013 and beyond.

Below is a summary of the primary areas of focus by the DEA in 2012 and the anticipated impact the actions will have on retail pharmacies, as well as some of our own predictions of where the Agency will focus its resources in 2013. The information discussed below was obtained entirely from public sources, including DEA press releases, conference presentations by DEA personnel and news outlets. While the primary focus and most publicized actions by the DEA involved pain clinics, the DEA continued to initiate administrative, civil and criminal proceedings against the more traditional diversion targets throughout the United States.

  1. Florida - Rogue Pain Clinics
    The epicenter of the DEA's enforcement actions involving rogue pain clinics, or "pill mills," remained in South Florida. In 2012, the DEA continued to conduct criminal investigations into rogue pain clinics, their owners, their doctors and servicing pharmacies. Several high-profile operations resulted in criminal, civil and/or administrative actions against DEA registrants and their co-conspirators.

    a. Cardinal Health
    One of the most publicized actions by the DEA in 2012 was the issuance of an Order to Show Cause and Immediate Suspension of Registration against Cardinal Health's Lakeland, Florida distribution facility. The DEA alleged that Cardinal Health failed to maintain effective controls against diversion and failed to conduct adequate due diligence on certain pharmacy customers in South Florida, including the two CVS pharmacy stores discussed below. After significant litigation in Federal District Court and preliminary administrative proceedings before the DEA, Cardinal Health entered into an administrative settlement agreement with the Agency. Pursuant to the Administrative Memorandum of Agreement (MOA), Cardinal Health agreed to a two-year suspension of its authority to handle controlled substances at its Lakeland facility and agreed to implement certain enhanced compliance measures, among other things.

    b. CVS
    Another highly publicized action by the DEA was the suspension and subsequent revocation of DEA registrations for two retail chain pharmacies operated by CVS in Sanford, Florida. In February, the DEA served Orders to Show Cause and Immediate Suspensions of Registration on the two CVS pharmacies. On October 12, 2012, Michele M. Leonhart, Administrator, DEA, issued a Final Order revoking the DEA registration of CVS Pharmacy #219 and CVS Pharmacy #5195, both located in Sanford, Florida. The Final Order issued by the DEA's Administrator provides significant insight on how the DEA will analyze similar cases in the future and can be accessed here:

    c. Walgreens
    In April, the DEA signaled its intention to continue focusing on retail chain pharmacies by executing Administrative Inspection Warrants (AIW) on six Walgreens pharmacies and the company's Jupiter, Florida Distribution Center. More than five months after service of the AIWs, the DEA issued an Order to Show Cause and Immediate Suspension of Registration against the Jupiter facility. In November, the DEA issued Orders to Show Cause against three of the six pharmacies previously served with AIWs. The administrative matters against Walgreens are ongoing. It is expected that the DEA will continue to issue administrative actions against Walgreens until such time that a global settlement is reached.

    d. Other Matters
    The DEA continued to take action against pain clinics, including the owners, doctors and pharmacies associated with the clinics. In June, the DEA charged seven doctors and seven clinic owners with state racketeering charges as part of Operation Pill Street Blues. This operation focused on alleged illegal prescribing of controlled substances at several pain clinics located in the general vicinity of Vero Beach, Florida. In August, further action against targets of the ongoing Operation Pill Nation resulted in the arrest of seven doctors and three clinic owners for purportedly operating rogue pain clinics in South Florida. The ongoing enforcement action by federal, state and local law enforcement has, not surprisingly, resulted in a geographic shift in the epicenter of rogue pain clinic activity. While other areas of Florida have experienced an uptick in such activity, the Florida pain clinic model has also taken hold in Georgia. We expect more geographic movement further north.

  2. Houston - Rogue Pain Clinics
    Much like South Florida (and, to a certain extent, Los Angeles), Houston is inundated with pain clinics that are alleged to be dispensing controlled substances for other than legitimate medical purposes. In November, the DEA executed approximately 50 search warrants at a dozen medical offices, retail pharmacies and other locations as part of Operation King of the Pill. We expect follow-up in Houston similar to what we saw in South Florida. Specifically, we will likely see additional enforcement action, especially against the distributors who supplied controlled substances to the clinics and pharmacies.

  3. Supply Chain
    In 2012, we saw continued emphasis by the DEA on the supply chain. Historically, the DEA's enforcement actions have focused on the supply chain by initiating action against distributors. Anecdotally, we understand that DEA is now engaging manufacturers of controlled substances in the same manner that they engaged distributors beginning in 2005. The DEA has begun to "request" meetings with manufacturers to discuss their obligations under the CSA. This is the same approach the DEA took with distributors. If past practice is indicative of future behavior (as is typically the case with the DEA), we should expect to see enforcement actions against manufacturers in the coming months and years. The immediate effect has been for manufacturers to become much more engaged with their downstream customers, primarily pharmacies. This will undoubtedly exert significant pressure on distributors and pharmacies and will adversely affect the availability of controlled substances for the legitimate medical needs of the United States. 

  4. Pharmacy Thefts
    The rise in prescription drug abuse appears to have caused a dramatic rise in pharmacy robberies. Nearly every day throughout the United States, there are news reports involving pharmacy robberies, typically undertaken by armed individuals seeking controlled substances. While we are not aware of any reported case involving enforcement actions against a pharmacy, based solely on the pharmacy's physical security measures, we suspect that pharmacies targeted multiple times by robbers, or retail chains that appear to be routinely targeted in a particular geographic area, may draw the attention of the DEA. While law enforcement continues to focus on the individuals perpetrating the crimes, it is only a matter of time before the DEA holds registrants accountable for their physical security measures, or lack thereof. Inadequate video recording equipment and unsecured controlled substances will likely be primary areas of concern for the DEA.

If you have any questions about the DEA's enforcement actions or related topics, please contact Larry Cote at (202) 372-9593 / [email protected] or your Quarles & Brady attorney.

[1] A presentation recently made by Joseph Rannazzisi, Deputy Assistant Administrator, Office of Diversion Control, indicated that 91 administrative cases were initiated in FY2012 versus 131 in FY2011, representing a decrease of more than 30%.