I Hear You Knockin’… Preparing for and Managing DEA Inspections (Part 1)

Observers can be forgiven for thinking that the Drug Enforcement Administration’s (“DEA’s) primary focus is suspicious controlled substance orders or pharmacists’ “corresponding responsibility.”  While these areas have been the subject of increased enforcement activity because of the national opioid epidemic, DEA registrants should not forget that at the local level compliance with the Controlled Substances Act (“CSA”) and DEA regulatory requirements on recordkeeping, reporting and security remain an Agency priority.  Granted COVID has impacted regular DEA inspection schedules for most local DEA offices, but that is likely to change in the coming months.

Maintaining complete and accurate records with direct, ongoing oversight by management reduces risk of internal employee pilferage and maximizes potential for early detection should diversion occur.  Recent Department of Justice (“DOJ”) press releases continue to show evidence of reported registrant civil settlements with the Government alleging recordkeeping and reporting deficiencies.  Incomplete and inaccurate records currently subject registrants to civil monetary penalties of up to $15,691 per violation.  28 C.F.R. § 85.5.  Needless to say, monetary penalties add up quickly for multiple violations of the same requirements.

We have also noticed a renewed emphasis on requirements related to remedial compliance programs in these civil settlements, often including a Memorandum of Agreement (MOA) with DEA and in some cases requiring a third-party auditor.  Thus, non-compliance can be very costly, so it is more important than ever to dot every “i,” cross every “t.”

As the nation opens up from the Covid-19 shutdown, and DEA resumes cyclic and on-site regulatory inspections, it behooves registrants to “kick the tires” of their controlled substance recordkeeping, reporting and security.  Management not directly overseeing daily or weekly compliance is always surprised when recordkeeping and reporting deficiencies are brought to their attention during the Agency’s on-site inspections.  The opioid epidemic has led DEA to take a more aggressive approach to cyclic and on-site inspections.  In July 2020, DEA stated as a justification for increasing registration fees that it planned to increase the number of scheduled regulatory inspections and investigations.  Registration and Reregistration Fees for Controlled Substances and List I Chemical Registrants, 85 Fed. Reg. 44,710, 44,716 (July 24, 2020).

We thought this would be a good time to post a series of blog posts focusing on DEA inspections and how registrants should prepare for and manage them, with a list of registrant do’s and don’ts.  While DEA has broad inspection authority under the CSA, registrants need to be aware of the scope and limits of such inspections and be proactive in preparing for and managing inspections.

Part 1 provides background and explains the scope of DEA cyclic and on-site inspections.

A.  Background

Congress enacted the CSA in 1970 establishing a comprehensive statutory framework to prevent the diversion and abuse of legitimate and illicit controlled substances with the Bureau of Narcotics and Dangerous drugs, now DEA, the primary federal agency responsible for enforcement.  The Agency’s mission is to eliminate illicit controlled substances altogether but its responsibilities for legal controlled pharmaceuticals is far more complex.  DEA seeks to prevent, detect and eliminate the diversion of controlled pharmaceuticals while ensuring their availability for legitimate medical, scientific and industrial purposes.  The CSA establishes a closed system of controlled substance distribution that requires every entity in the chain, from importers to manufacturers, distributors, exporters, pharmacies, hospitals, narcotic treatment programs and practitioners, to obtain a DEA registration and account for the controlled substances they handle.  The CSA establishes classifications for drugs based on their potential for abuse relative to their legitimate medical use.  21 U.S.C. § 812.  A drug’s classification, or “schedule,” triggers certain recordkeeping and reporting, registration, quota, and security requirements applicable to each controlled substance.

DEA’s Diversion Control Division is the dedicated unit responsible for regulating legitimate controlled pharmaceuticals and regulated chemicals.  Diversion investigators ensure that registrants comply with the CSA’s regulatory requirements and bring registrants into compliance when they are noncompliant.  DEA can seek administrative action, and working with U.S. Attorney’s Offices, civil or criminal action, against registrants who fail to comply with the CSA and its regulations.  We have also seen increased participation by the DOJ Consumer Protection Branch in DEA investigations and enforcement actions brought against DEA registrants.  See, for example, Federal Court Orders North Carolina Pharmacy, Pharmacy Owner, and Pharmacist-in-Charge to Pay More Than $1 Million and to Cease Dispensing Opioids or Other Controlled Substances, Dec. 17, 2020.

DEA Diversion investigators are primarily responsible for conducting inspections of the regulated industry.  However, more recently, we have observed that DEA special agents are also becoming more involved in investigations of registrants, thus, raising the stakes for compliance.  Also, local task force officers with law enforcement and regulatory agencies have also become increasingly involved in such actions.  Pre-registration and cyclic inspections are critical to DEA diversion investigators ascertaining new and existing registrant compliance with the CSA and DEA regulations.  Diversion investigators and DEA special agents may also conduct targeted investigation inspections which often are accompanied by an Administrative Subpoena or Administrative Inspection Warrant.  We will discuss these actions in more detail in later blog.

It is worth noting that DEA headquarters is actively involved in establishing annual workplans for the DEA local offices identifying certain  “non-practitioner” registrants (manufacturers, distributors, importers, exporters, narcotic treatment programs) for local diversion groups to inspect during the year within their geographic region.  This ensures that every non-practitioner registrant is inspected periodically.  Beginning about 2009, DEA “intensified its regulatory activities to help the registrant population better comply with the CSA and to identify those registrants who violated the CSA and implementing regulations.”  Controlled Substances and List I Chemical Registration and Reregistration Fees, 76 Fed. Reg. 39,318, 39,324 (July 6, 2011).  At that time, DEA began conducting more frequent scheduled investigations of “non-practitioners.” Id.

Then-Administrator Michele Leonhart, testifying before the House of Representatives Committee on Energy and Commerce’s Subcommittee on Commerce, Manufacturing and Trade, affirmed the Agency’s “renewed focus on regulatory control [that] has enabled DEA to take a more proactive approach on multiple fronts to ensure that DEA registrants are complying with the Controlled Substances Act and implementing regulations.”  Warning: The Growing Danger of Prescription Drug Diversion Hearing Before the Subcomm. On Commerce, Manufacturing and Trade of the H. Comm. On Energy and Commerce, 112th Cong. 6 (2011) (statement of Michele M. Leonhart, Administrator, DEA, Department of Justice).  Since that time, DEA has undertaken initiatives addressing the current opioid abuse epidemic, including moving its focus from prescribers as controlled substance gatekeepers to patient access up the chain to pharmacies, distributors and manufacturers.

Non-practitioner registrants can expect DEA investigators to inspect their controlled substance operations about once every three years, and Drug Addiction Treatment Act (“DATA”)-waived practitioners (physicians who are administering, dispensing, and prescribing specific FDA-approved controlled substances for narcotic addiction treatment) approximately once every five years.  However, although non-practitioners are not subject to routine cyclic inspections, we are aware of local DEA offices conducting random inspections of pharmacies, hospitals, veterinarians and other non-practitioners.  We expect this trend to continue.

B.  Scope

The CSA authorizes DEA investigators and agents to inspect “controlled premises,” defined as places where registrants “may lawfully hold, manufacture, distribute, dispense, administer, or otherwise dispose of controlled substances or listed chemicals or where records relating to those activities are maintained.”  21 U.S.C. § 880(a)(2).  Investigators and agents can inspect and copy acquired records and reports; inspect finished and unfinished drugs, equipment, containers, labeling, processes and controls.  Investigators may inventory controlled substances on-hand and take samples.  21 U.S.C. § 880(b)(3).  They are not authorized to inspect financial data, sales data other than shipment and transaction data, or pricing data unless the registrant provides written consent.  21 U.S.C. § 880(b)(4).

Investigators also typically request personal information about officers and employees with access to controlled substances, employee background checks and policies/procedures.  While this information is not specifically required to be maintained by the CSA or the regulations, it is relevant for assessing the registrant’s ability to comply with the recordkeeping, reporting and security requirements.

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Part 2, scheduled for posting in about two weeks, will explain the DEA inspection process and how registrants should prepare for and manage inspections.  Lastly, Part 3 will provide our list of DEA inspections do’s and don’ts for registrants.