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Drug Distributors Penalized For Turning Blind Eye In Opioid Epidemic

McKesson Corp. agreed to pay a $150 million fine to settle claims that it failed to report suspicious orders for controlled substances.
Paul Sakuma
McKesson Corp. agreed to pay a $150 million fine to settle claims that it failed to report suspicious orders for controlled substances.

As the toll of the opioid epidemic grows, scores of doctors have lost their licenses and some have gone to prison. Pharmacies are being sued and shuttered. Pharmaceutical manufacturers are under investigation and face new rules from regulators.

But penalties against companies that serve as middlemen between drug companies and pharmacies have been relatively scarce — until recently.

In the past month, two major drug distributors, also known as wholesalers, have formally agreed to pay millions of dollars to settle claims that they failed to report suspicious orders for controlled substances to the Drug Enforcement Administration, as required by law.

McKesson Corp., the largest such company in the U.S., agreed Jan. 17 to pay a $150 million fine. And in late December, Cardinal Health reached a $44 million settlement with the federal government. That's on top of another $20 million that Cardinal Health agreed this month to pay the state of West Virginia, which has been among the hardest hit by opioid overdoses. Other distributors have also agreed to pay smaller amounts to West Virginia within the past few months. AmerisourceBergen, for instance, will pay $16 million.

"Have the distributors gotten the message? I would hope so," said Frank Younker, who worked at the DEA for 30 years and retired as a supervisor in its Cincinnati field office in 2014. "The distributors are important. They're like the quarterback. They distribute the ball. ...There's plenty of blame to go around."

The death toll from drug overdoses topped 52,000 in 2015, including 33,000 involving an opioid, according to the Centers for Disease Control and Prevention. Although the epidemic began with prescription pills, it is now being driven largely by heroin and various synthetic opioids.

The fines, some of which had been in the works for years, come as news organizations have raised questions about the significant role distributors have played by failing to stop or report pharmacies that appeared to be dispensing more pills than seemed reasonable.

The Charleston Gazette-Mail reported in December how drug companies shipped nearly 9 million hydrocodone pills over two years to one pharmacy in the town of Kermit, W. Va., population 392. All told, the newspaper reported, drug wholesalers distributed 780 million pills of oxycodone and hydrocodone in the state over six years. "The unfettered shipments amount to 433 pain pills for every man, woman and child in West Virginia," the story said.

The Washington Post reported in October how DEA leadership delayed and blocked enforcement actions as the overdose epidemic grew. Civil case filings against distributors, manufacturers, pharmacies and doctors dropped from 131 in fiscal 2011 to 40 in fiscal 2014, the Post reported. Immediate suspension orders (the toughest sanction the DEA has) fell from 65 to 9.

Later, the Post reported why that may have been: The drug industry had hired dozens of officials from the DEA, leading some current and former officials to ask whether the industry sought to hire away those who presented "the biggest headaches for them."

In response to written questions for this story, the DEA said it has always held distributors "accountable for preventing the diversion of controlled and abused prescription drugs, including the opioid painkillers."

Asked if its recent fines were too little, too late, the agency replied, "We don't think so. We hope large fines such as this one [against McKesson] will get the attention of the companies' leaders and stockholders and prompt them to be responsible corporate citizens, because people are dying as a result of the diversion of the opioid drugs they sell, and that can't continue."

In statements released when the distributors finalized their settlements, the companies said they have improved their performance in recent years. McKesson noted that the settlement covers reporting practices dating back to 2009. "Since 2013, McKesson has implemented significant changes to its monitoring and reporting processes," the company said in a statement.

As part of the settlement, the DEA will suspend the registrations of four of McKesson's distribution centers, on a staggered basis, blunting the effect of the punishment.

"Pharmaceutical distributors play an important role in identifying and combating prescription drug diversion and abuse," John H. Hammergren, chairman and chief executive officer, said in the statement. "McKesson, as one of the nation's largest distributors, takes our role seriously."

The DEA had previously taken action against McKesson in 2008 for failing to report suspicious orders, a factor cited in the latest fine.

Cardinal Health's fine was the last aspect of a 2012 settlement with the DEA, which included a two-year suspension of its Lakeland, Fla., distribution center. "These agreements allow us to move forward and continue to focus on working with all participants in addressing the epidemic of prescription drug abuse," Craig Morford, its chief legal and compliance officer, said in a statement last month.

Federal prosecutors who worked on the McKesson case said that distributors play an important role in the overall system in which controlled substances get distributed. "What Congress envisioned is that there would be gatekeepers along the way in this closed system," said Kurt Didier, an assistant U.S. attorney in Sacramento, in an interview. "It starts with the physician writing the prescription and the pharmacist filling the prescription. In between, you have entities like the distributors.

"In this overall scheme, a distributor is obligated to report to DEA prescriptions or orders that it views are suspicious," Didier said.

The agencies regulating the industry have had their own problems. The Gazette-Mail reported that the West Virginia pharmacy board didn't pay much attention to its own rules requiring that wholesalers report such orders. The board also had not examined reports from distributors regarding suspicious orders by pharmacies, nor had it shared those with law enforcement.

For its part, the DEA also has been faulted several times by the Government Accountability Office for, among other things, how it sets annual quotas for the amount of controlled substances that can be produced, the information and guidance it provides to the entities it regulates, and how it uses confidential informants.

Jim Geldhof, who retired in January 2016 after more than 40 years with the DEA, most recently as a manager in the Detroit field office, said the recent fines are important, but he wonders if they will make any difference. "It's going to be pretty hard to undo the damage that's been done," said Geldhof. "Do they get it? I don't know. I don't have a real lot of faith in industry frankly."

ProPublica is a nonprofit newsroom based in New York. You can follow Charles Ornstein on Twitter: @charlesornstein.

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Charles Ornstein