Cardinal Health is in trouble with DEA over suspicious order monitoring--again

Just a day after he completed the company’s quarterly earnings report to Wall Street, Cardinal chairman and CEO George Barrett was on the phone again--this time to mount an aggressive stance against the Drug Enforcement Agency. That agency had suddenly suspended the license to distribute Schedule II drugs (primarily oxycodone) from its Florida distribution center due to Cardinal’s alleged failure to perform due diligence in preventing diversion of the drugs.

By late afternoon on Feb. 3, Cardinal had obtained a temporary restraining order against the suspension, and could resume shipments pending a Feb. 13 hearing in Washington, DC. Cardinal noted that, besides taking numerous precautions against possible diversions, the Lakeland DC serves 2,500 pharmacies and hospitals in Florida, Georgia and South Carolina. Although it was preparing to activate a contingency plan that would allow shipments to continue from its Jackson, MS, DC, Cardinal asserted that the suspension would potentially disrupt deliveries of needed medicine to patients. DEA maintained that four pharmacies (including two of CVS Caremark) were diverting drug shipments; Cardinal countered that two of the four had already had shipments rejected, and that the company is actively monitoring Schedule II shipments, and had rejected over 350 pharmacy orders, including 160 from Florida alone, in the recent past.

The DEA action calls to mind the spate of suspensions that was endured by Cardinal three times during 2007-8, as well as similar suspensions for AmerisourceBergen and McKesson back then. In the aftermath, Cardinal paid a $34-million fine to DEA, and spent a reported $20 million to install and operate a suspicious order monitoring system (SOMS) to prevent diversions. Ultimately, Cardinal took a $2-billion hit on its revenues as result of the suspensions, according to Wall Street analyst reports at the time. For the moment, Barrett said that he didn’t expect any change to the company’s current Wall Street guidance (which, by the way, saw a 7% revenue increase and a 31% increase in operating earnings in the past quarter).

Time to collaborate?

DEA takes actions like these as a shortcut to penalizing individual pharmacies; why go after tens to hundreds of individual pill mills or shady pharmacists, when one can whack many of them by coming down hard on the DC serving them? But Barrett protests that, outside its own internal controls, it has limited ability to investigate all pharmacies, and shouldn’t be held accountable for clients that it does not directly control. “The pharmacies in question had legitimate DEA licenses,” he noted, adding that Cardinal does not know whether a pharmacy is ordering from it alone or from other wholesalers as well. “DEA has unique information” on all pharmacies ordering controlled substances, he said, “but the agency does not share that information with us.”

Distributor SOMS are supposed to flag sudden increases in drug ordering, but order volumes can change for completely legitimate reasons, so closer examination is necessary before corrective actions could be taken. “We’d like to see a truly collaborative, holistic approach” to the problem of drug diversion, said Barrett. “We are ready to be a part of a new effort.”