Mallinckrodt to Pay $35 Million to End Controlled Rx Cases

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By Dana A. Elfin

A recent $35 million settlement shows a new government strategy of alleging drug diversion against drug manufacturers that fail to detect and report excessive opioid orders.

Mallinckrodt LLC has agreed to pay the government $35 million to resolve claims it failed to take required steps to prevent the spread of prescription painkillers in the midst of a national opioid crisis. Mallinckrodt is one of the nation’s leading makers of generic oxycodone.

The settlement, which the government announced July 11, is the largest to date with a drug manufacturer over the reporting and recordkeeping rules in the Controlled Substances Act.

The settlement comes as the government is cracking down on companies’ improper handling of controlled substances amid growing public concern over opioid addiction in the U.S.

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,” the government said.

Under the CSA, companies are required to monitor and report suspicious orders of controlled substances like oxycodone.

Recently, the government has settled claims under the CSA against drug distributors and pharmacies, including Amerisource Bergen, Cardinal Health Inc., Costco Wholesale Corp., CVS Health, McKesson Corp. and Walgreens Boots Alliance Inc.

Holding Drugmakers Accountable

The government said it intends to hold drug companies accountable for CSA violations, too.

“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,” Attorney General Jeff Sessions said in a statement. “Part of that mission is holding drug manufacturers accountable for their actions.”

Chuck Rosenberg, the acting administrator of the Drug Enforcement Administration, echoed the accountability theme. “Manufacturers and distributors have a crucial responsibility to ensure that controlled substances do not get into the wrong hands,” he said in a statement. “When they violate their legal obligations, we will hold them accountable.”

First Action Against Drugmaker

The Mallinckrodt case is the first time the government has brought a case against a drug manufacturer for drug diversion, Richard W. Fields, an attorney with Fields PLLC in Washington, told Bloomberg BNA in a July 12 telephone interview.

Fields is special counsel in the suit the Cherokee Nation filed in April against major drug distributors and pharmacy retailers, claiming the companies enabled prescription opioids to fall into illegal channels.

“Pharmaceutical manufacturers have the same duty to prevent diversion as everyone else in the distribution chain,” Fields said.

“The pharmaceutical manufacturer is probably the only entity in the distribution chain who knows where every pill goes,” he said. “They know what doctors are prescribing and they know where diversion exists in the chain.”

Suspiciously Large Orders

In the Mallinckrodt case, the government alleged the company failed to design and implement an effective system to detect and report “suspicious orders” for controlled substances. Suspicious orders are orders unusual in frequency, size, or other patterns.

The government said Mallinckrodt supplied distributors with an “increasingly excessive quantity of oxycodone pills” without notifying DEA of these suspicious orders from 2008 until 2011. These overly large orders were subsequently distributed to pharmacies and pain clinics across the country. The government also alleged the drugmaker violated recordkeeping requirements related to batch manufacturing records at its plant in Hobart, N.Y.

Company Doesn’t Admit Liability

Mallinckrodt denied it violated any laws and didn’t admit any liability in connection with the settlement.

“While Mallinckrodt disagreed with the U.S. government’s allegations, we chose to resolve the legacy matter in order to eliminate the uncertainty, distraction and expense of litigation and to allow the company to focus on meeting the important needs of its patients and customers,” Mallinckrodt’s general counsel, Michael Bryant-Hicks, said in a July 11 statement.

“Mallinckrodt has long been an industry leader in actively combating the serious issue of prescription drug abuse with a demonstrated record of meeting and exceeding the requirements of federal and state laws governing the manufacturing, sale and distribution of controlled substances,” Hicks said.

In addition to the $35 million monetary penalty, Mallinckrodt also entered into a parallel agreement with the DEA. Under the agreement with the DEA, U.K.-based Mallinckrodt will analyze data it collects on orders from customers down the supply chain to identify suspicious sales, the government said.

Token Penalty?

Fields said the government should be “applauded for bringing the case,” but said the $35 million penalty assessed against Mallinckrodt is too small to have any impact on other drug companies.

“It’s absolutely outrageous that the DEA has literally let this company pay a token amount,” he said.

Bloomberg BNA contacted both the government and Mallinckrodt for copies of the settlements but no one was available to respond.

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

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