Mallinckrodt pharma pays record $35 mill. for failure to report suspicious orders of drugs

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Mallinckrodt LLC, pharmaceutical manufacturer and one of the largest producers of oxycodone will pay $35 Million settling assertions that it violated the Controlled Substances Act (CSA) says the DOJ. The government alleged that Mallinckrodt failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances – orders that are unusual in their frequency, size, or other patterns. From 2008 until 2011, Mallinckrodt supplied distributors, and the distributors then supplied various U.S. pharmacies and pain clinics, an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders. Through  investigation, the government learned that manufacturers of pharmaceuticals offer discounts, known as “chargebacks,” based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. The groundbreaking nature of the settlement involves requiring a manufacturer to utilize chargeback and similar data to monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.

The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York. Among other things, these violations created discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records. Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain.

In addition to the significant monetary penalty, this settlement includes a groundbreaking parallel agreement with the DEA, as a result of which the company will analyze data it collects on orders from customers down the supply chain to identify suspicious sales. The resolution advances the DEA’s position that controlled substance manufacturers need to go beyond “know your customer” to use otherwise available company data to “know your customer’s customer” to protect these potentially dangerous pharmaceuticals from getting into the wrong hands. DEA’s Memorandum of Agreement with Mallinckrodt also sets forth specific procedures it will undertake to ensure the accuracy of batch records and protect loss of raw product in the manufacturing process.

By entering into these agreements, elements of which Mallinckrodt is already implementing, the company is becoming part of the solution to this public health epidemic.

U.S. Attorneys’ Offices for the Eastern District of Michigan and the Northern District of New York, along with DEA Office of Chief Counsel and Diversion Control Division, led the civil settlement negotiations. The Criminal Division’s Narcotic and Dangerous Drug Section (NDDS) also coordinated and assisted in negotiating the settlement.

“In the midst of one of the worst drug abuse crises in American history, the Department of Justice has the responsibility to ensure that our drug laws are being enforced and to protect the American people,” said Attorney General Sessions. “Part of that mission is holding drug manufacturers accountable for their actions. Mallinckrodt’s actions and omissions formed a link in the chain of supply that resulted in millions of oxycodone pills being sold on the street. Thanks to the hard work of our attorneys and law enforcement, Mallinckrodt has agreed to do everything they can to help us identify suspicious orders in the future. And as a result of today’s settlement, we are sending a clear message to drug companies: this Department of Justice will hold you accountable for your legal obligations and we will enforce our laws. I believe that will prevent drug abuse, prevent new addictions from starting, and ultimately save lives.”

Jeffrey Newman represents whistleblowers