Last week, the U.S. Department of Justice took an important step in the fight against opioid abuse, announcing the first criminal charges against a pharmaceutical distribution company for its part in perpetuating the opioid crisis by ignoring red flags of abuse. Charges were brought against Rochester Drug Co-Operative (“RDC”), one of the ten largest pharmaceutical distributors, and two of its executives. Charges against the company include: (1) failure to maintain effective controls against the diversion of controlled substances, including oxycodone and fentanyl; (2) failing to submit suspicious order reports to the U.S. Drug Enforcement Agency (“DEA”) that are meant to help identify potential abuse (and required by law); and (3) conspiring to defraud the DEA by making misrepresentations about its controls and withholding the suspicious order reports.

The Criminal Information alleges that RDC, a New York-based pharmaceutical distributor, saw unprecedented increases in its sale of opioids over the course of four years. RDC’s sale of oxycodone tablets surged from approximately 5 million in 2012 to 42 million in 2016 as did its sale of fentanyl dosages from approximately 60,000 in 2012 to 1.3 million in 2016. Despite recognizing that these huge jumps in sales exceeded legitimate medical needs, the government asserts that RDC failed to investigate, monitor, or report suspicious customers to the DEA.

Over time, RDC’s compliance department identified that many of its largest customers displayed “red flag” behavior, such as purchasing only controlled substances and little else or accepting a high percentage of cash from patients, and concluded they were likely diverting controlled substances. However, because RDC knew that reporting these customers to the DEA would likely result in an investigation and the end of a revenue source, the government alleges that RDC’s senior management explicitly directed its compliance department to refrain from reporting suspicious sales habits.

In addition, the DOJ claims that RDC did not perform the required due diligence on potential new customers and simply supplied the customers with controlled substances. At one point, RDC’s outside counsel noted that it had more than 100 pharmacy customers that required additional due diligence to ensure they were compliant with the controlled substances laws and regulations. However, the Criminal Information contends that RDC largely ignored these warnings, did not conduct additional due diligence, and continued to supply these customers with controlled substances.

RDC has accepted responsibility for these charges, stipulated to facts set forth by the government, and entered into a Deferred Prosecution Agreement with the DOJ. As part of the Deferred Prosecution Agreement, RDC has agreed to fully cooperate with the DOJ, establish and maintain a Controlled Substances Compliance Committee, update its internal policies regarding controlled substances, employ an independent monitor, and pay $20 million in exchange for a five year deferral of charges. In addition, one of RDC’s senior executives and its former chief compliance officer, William Pietruszewski, has plead guilty and has agreed to cooperate with prosecutors. However, Laurence Doud, the former CEO of RDC, plead not guilty.

These criminal charges appear to be the DOJ’s next step in its commitment to attacking the opioid crisis from all angles. As we previously reported, the DOJ announced in October 2018 that it budgeted $320 million to combat the opioid crisis and has preemptively shut down pharmacies that were accused of allowing controlled substances into the market unchecked. Based on the trajectory of the DOJ’s investigations, the government will continue to root out the cause of the opioid crisis and hold individuals and companies accountable.