In yet another example of the significantly heightened risk and enforcement focus around controlled substances, AlixaRx LLC, a pharmacy services company that dispenses prescription drugs to long-term care facilities via automated dispensing systems (ADS), has reached a $2.75 million settlement with the United States over allegations that it permitted opioids and other controlled substances to be dispensed without valid prescriptions. This matter is notable for several reasons. First, as discussed below, the action is one of an increasing number of cases we here at Frier Levitt are monitoring in which the federal government has taken a more aggressive posture with respect to ostensible Drug Enforcement Administration (DEA) record-keeping violations. Second, the basis of the false claims alleged were prescription drug event (PDE) records, which we wrote about previously here.
By way of background, an ADS is a computerized drug storage device or cabinet that permits medications to be stored and dispensed near the point of care, and which collects and maintains all transaction information. See 21 C.F.R. § 1300.01(b). ADS manufacturers include Omnicell, Pyxis, AcuDose and MedSelect, among others. Retail pharmacies may install and operate an ADS at a long-term care facility provided that they maintain a separate DEA registration at the location of each facility in which an ADS is located. See id. § 1301.27(b). Such facilities include nursing homes, retirement care, mental care, or other facilities or institutions that provide extended health care to resident patients. See id. § 1300.01(b). If, however, the ADS is used solely as an emergency drug kit, separate registration of the machine is not required.
In either event, DEA regulations provide that a Schedule II controlled substance may only be dispensed pursuant to a valid written prescription, barring an “emergency situation” (Id. § 1306.11(a)). Such an emergency situation is one in which the prescribing practitioner determines that 1.) immediate administration of the controlled substance is necessary; 2.) no appropriate alternative treatment is available; and 3.) it is not reasonably possible for the prescribing practitioner to provide a written prescription prior to the dispensing. Id. § 290.10. The quantity prescribed must be limited to the amount adequate to treat the patient during the emergency, typically defined as a 72-hour period. See id. § 1306.11(d); N.J.A.C. 13:45H-7.8.
Finally, stringent record-keeping requirements apply to the emergency dispensing of Schedule II substances, including that the dispensing pharmacist shall immediately reduce the oral order, and all required information, to writing. See 21 C.F.R. § 1306.11(d)(2). In the event the prescriber is not known to the pharmacist, he or she must make reasonable efforts to verify that the oral authorization came from a registered practitioner, potentially including telephone validation. See id. § 1306.11(d)(3). In addition, within 7 days from the oral authorization, the prescriber must cause a written prescription to be delivered to the dispensing pharmacist, who is then obligated to attach the prescription to the previously documented oral order. See id. § 1306.11(d)(4). Should the prescriber fail to deliver a written prescription, the pharmacist is required to notify the nearest DEA office; failure to do so voids the pharmacist’s authority to dispense the medication at issue.
The ADS at issue in AlixaRx enabled medication management in the long term care setting by permitting pharmacists to stock, package, label and dispense over 300 medications, one dose at a time. Those machines, however, did not alert staff to low stock levels, which allegedly forced nurses to obtain oral authorizations from prescribers to dispense Schedule II substances in response to what they deemed “emergency situations.” The qui tam relator alleged that these dispensing events constituted either “fake emergency” or “illegal refill” requests. In addition, AlixaRx routinely failed to obtain written prescriptions within 7 days after the verbal order.
Nonetheless, although the Department of Justice’s press release claimed that AlixaRx’s conduct “allows for substances to be diverted and sold on the black market,” the gravamen of the complaint is that AlixaRx violated administrative record-keeping requirements. Specifically, the settlement does not appear to implicate excessive quantities, early refills, inventory discrepancies, bogus prescriptions, or other traditional indicia of diversion. Moreover, it appears that AlixaRx staff documented the oral order as required, but did not obtain written prescriptions from the prescriber within 7 days thereafter. Thus, all indications are that this compliance failure likely could and should have been prevented by routine compliance activities, including but not limited to monitoring employee compliance to SOPs. Notably, the cost of monitoring activities typically is less than 5% of compliance budget, further reinforcing the business case for robust compliance programming and proactive attention.
That said, when it comes to controlled substances, we at Frier Levitt have observed a mounting trend among federal and state authorities to rely on administrative record-keeping requirements as the basis for civil settlements involving the imposition of outside monitors/review organizations, and even criminal prosecution. For example, inventory discrepancies—one of the more common inspection deficiencies—historically have been resolved via administrative fines and, in more severe cases, compliance protocols. Such inventory discrepancies are often the result of imperfect records but also may be suggestive of pilfering, a persistent employee workplace challenge for pharmacies. We have previously noted our observations regarding government proceedings and inventory shortages here.
The AlixaRx case presents another illustration of how administrative record-keeping violations may form the basis for qui tam and civil liability. It bears note, however, that federal authorities have the ability bring criminal charges in either factual scenario (inventory shortages/missing prescriptions) under Title 21, United States Code, Section 843, which makes it a felony offense for a registrant “to distribute a controlled substance classified in schedule I or II, in the course of his legitimate business, except pursuant to an order or order form as required by section 828 of this title” (21 U.S.C. § 843(a)). A violation of this statute is punishable by up to 4 years incarceration. See id. § 843(d). In short, there is a wide range of potential outcomes implicated by controlled substance risks that must be carefully managed in any governmental inquiry.
Anthony J. Mahajan formerly served as Chief Counsel to McKesson Corp., where he was responsible for providing legal advice to the business regarding compliance with suspicious order reporting requirements and McKesson’s 2017 settlement with the Department of Justice and DEA regarding controlled substances. He previously was employed as an Assistant U.S. Attorney for the U.S. Department of Justice, where he investigated and prosecuted controlled substance offenses against manufacturers, distributors, pharmacies and health care professionals. Mr. Mahajan currently serves as chair of Frier Levitt’s White Collar Defense & Government Investigations practice.