Pharmacy Audit Assistance Service

Is Your Pharmacy Being Audited by the DEA? If So, Here’s What You Need to Know.

Lynette Byrd
Attorney Lynette S. Byrd
Pharmacy Audit Assistance Team Lead
Former DOJ Attorney
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It is Tuesday morning. You just opened your pharmacy, and the first orders are coming in. Suddenly, two women enter your pharmacy, show their badges, and ask to speak with the pharmacist. They are Diversion Investigators with the U.S. Drug Enforcement Administration (DEA). Your pharmacy is being audited.

Will you pass the audit? Pharmacy compliance with all DEA regulations and the Controlled Substances Act (CSA) in place? What will happen if your inventory shows a discrepancy? What error rate is tolerable? What is the worst that can happen? Can the DEA revoke your registration? As the pharmacy’s owner, could you face personal civil, or criminal liability?

Why is the DEA Auditing Your Pharmacy?

First and foremost, the job of DEA Diversion Investigators is to ensure that pharmacies are in strict compliance with all applicable laws and regulations. This includes, but is not limited to, the Controlled Substances Act (21 U.S.C. 801-971), the Combat Methamphetamine Epidemic Act of 2005 (CMEA), the Food, Drug, and Cosmetic Act (FDCA), and the pertinent provisions of the Code of Federal Regulations (21 C.F.R. Parts 1300 et seq.).

So, during an audit of your pharmacy, the DEA’s Diversion Investigators will be closely scrutinizing all aspects of your business, from your pharmacy’s physical security to its electronic prescription compliance procedures.

However, with the nation’s opioid epidemic continuing to be a top DEA priority, the primary focus of the audit will undisputedly lie in examining your pharmacy’s prescriptions for drugs containing benzodiazepine and other commonly abused drugs such as oxycodone, hydrocodone, hydromorphone, morphine, codeine, clonazepam, alprazolam, lorazepam, diazepam, and carisoprodol. Since this is the DEA’s top compliance concern, it needs to be one of your top compliance concerns as well. However, while this is the case, it does not mean that you can afford to let your compliance efforts slide in other areas. If an audit reveals any regulatory or statutory violation, you could be at risk for substantial federal penalties.

7 Common Issues During DEA Audits

As we mentioned above, during DEA audits, pharmacy owners can expect to face questions related to all facets of their business operations. While this list is by no means exhaustive, here are some of the most-common issues we see when our attorneys and former agents represent clients in DEA pharmacy investigations:

1. Violations Related to Schedule II Controlled Substances

Schedule II controlled substances are considered high-risk drugs for diversion due to their illicit street value and propensity for abuse. During a pharmacy audit, DEA Diversion Inspectors will spend a significant of time focused on the pharmacy’s practices related to schedule II narcotics and stimulants such as morphine, hydromorphone, methadone, meperidine, oxycodone, fentanyl, amphetamine, methamphetamine, and methylphenidate.

DEA-registered pharmacies simply cannot afford to have material inventory error rates in this category, which also includes cocaine, amobarbital, glutethimide, and pentobarbital. Any perceived issues related to the dispensing of schedule II controlled substances will be the subject of intensive review, and the DEA (along with the U.S. Department of Justice (DOJ)) aggressively pursues pharmacy owners and pharmacists suspected of either (i) intentionally diverting schedule II drugs, (ii) turning a blind eye to possible diversion, or (iii) failing to take the necessary steps to develop an adequate compliance program.

2. Violations Related to Schedule III Controlled Substances

Schedule III controlled substances include combinations containing less than 15 milligrams of hydrocodone per dosage unit (Vicodin), drugs containing not more than 90 milligrams of codeine per dosage unit (Tylenol with codeine), buprenorphine products (Suboxone and Subutex), as well as non-narcotics like benzphetamine, phendimetrazine, ketamine, and anabolic steroids.

Since many schedule III controlled substances are also at high-risk for abuse, DEA Diversion Investigators heavily scrutinize pharmacy’s prescription and dispensing practices related to these drugs as well. For example, a pharmacy that fills an abnormally high number of prescriptions for schedule III drugs could be at risk for allegations that it either (i) is facilitating diversion in conjunction with an overprescribing physician, or (ii) has not implemented adequate controls to for these prescriptions to internally raise red flags. In these types of scenarios, it is not a defense for a pharmacy to claim that it was simply filling the prescriptions it received. Pharmacies have affirmative an affirmative obligation to investigate questionable prescription practices, and they can face severe consequences for failing to do so. This is why you may need a DEA defense lawyer!

3. Violations Related to Schedule IV Controlled Substances

Schedule IV controlled substances include the narcotic propoxyphene as well as alprazolam, clonazepam, clorazepate, diazepam, lorazepam, midazolam, temazepam, and triazolam. The DEA often considersschedule IV substances dangerous supplements to schedule II or schedule III narcotics (with combined drugs referred to as “cocktails”).

Here, too, pharmacies need to be extremely careful. Even isolated incidents can raise DEA Diversion Investigators’ eyebrows, and high error rates can lead to a presumption of intentional misconduct. If mistakes have been made, they will need to be addressed proactively, but this must be done carefully in order to avoid raising additional questions during the audit.

4. Suspicious Dispensing Patterns

In addition to independently assessing pharmacies’ compliance with regard to controlled substances on schedules II, III, and IV (and sometimes schedule V), during an audit the DEA will also analyze any suspicious dispensing patterns. For example, the Diversion Investigators may request statistics of the number of cash-paying patients, Medicaid patients, chronic pain patients, patients with frequent refills, new patients, and the like.

When it comes to dispensing medications, as we mentioned above, pharmacies’ obligations extend far beyond simply filling doctors’ prescriptions. Right now, the DEA views pharmacies as part of the problem with regard to the nation’s opioid epidemic, and it expects them to become part of the solution. As a result, even inadvertent compliance can lead to substantial fines, loss of DEA registration, and Medicaid exclusion, among other penalties. If the DEA suspects that you may be diverting prescription drugs intentionally, it won’t hesitate to go to the DOJ with the evidence prosecutors need to seek an indictmenton criminal charges.

5. Relationship with Physicians

Increasingly, we have seen instances of DEA Diversion Investigators asking pharmacy owners and physicians in charge (PICs) about pharmacies’ relationships with specific physicians. For example, in one recent audit, investigators disclosed that a certain physician who previously referred narcotic prescriptions to our client had recently been indicted for alleged violations of the Controlled Substances Act. With regard to our client, the investigators’ questions centered around to what extent the prescriptions from this physician met the test of medical necessity and, more generally, what steps our client took to validate the correctness, appropriateness, and necessity for each controlled substance prescription.

In addition to these types of questions, pharmacies can also face questions regarding their financial relationships with prescribing physicians. While there are lawful ways for pharmacists to contract with third-party physicians (i.e. under various safe harbors of the Anti-Kickback Statute), in general, any evidence of payments or other benefits being tied to the volume of prescriptions or patient referrals is going to raise questions as to the legality of the relationship.

6. The Pharmacy’s Business Model

During pharmacy audits, the DEA will often scrutinize why individuals use the audited pharmacy and why physicians refer their patients there. Any questioning in this area is also designed to assess whether the pharmacy may be complicit in the unlawful diversion of schedule II, III, or IV controlled substances. For example, if patients travel a significant distance to use the pharmacy (particularly when there are closer pharmacies nearby), or if a particular physician consistently sends a specific type of prescription to the pharmacy, this will likely be viewed as a red flag for possible drug diversion.

7. Inadequate Compliance Controls or Documentation

Finally, during a pharmacy audit, DEA Diversion Investigators will also examine the overall sufficiency of the pharmacy’s compliance program. This includes not only actual compliance but also documentation of the pharmacy’s compliance efforts (which, technically, is itself a part of compliance). Here, too, even unintentional shortcomings can lead to significant ramifications; and, if there are enough shortcomings to suggest that the pharmacy’s owners should have known better or had intentionally turned a blind eye to compliance, then the consequences can become even more severe.

When auditing pharmacies’ compliance efforts, DEA Diversion Investigators will focus their examination on seven key aspects of compliance:

  • Prescription Drug Inventory
  • Packaging and Transfer of Prescription Drugs
  • Security to Prevent Loss or Theft
  • Pharmacy Record-Keeping Practices
  • Prescription Management and Fraud Monitoring
  • Drug Ordering
  • Drug Dispensing and Diversion Prevention

However, this list, too, is not comprehensive. DEA-registered pharmacies have a host of compliance obligations, and certain types of pharmacies (i.e. compounding pharmacies and specialty pharmacies) face even greater compliance burdens. If your pharmacy is being audited, in order to avoid unnecessary consequences, you should speak with a pharmacy and compliance defense lawyer promptly.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Classic Violations in DEA Pharmacy Audits

While federal investigators are tasked with enforcing a tremendous number of laws and regulations, most investigations hone in on a few common violations. Below is a list of the most commonly used statutes during a federal investigation.

21 CFR 1314.40 – Self Certification

The fact that scheduled substances are controlled means that only certain individuals can dispense them. One of the requirements to dispense any controlled substance comes from 21 CFR 1314.40. Section 1314.40 mandates all “regulated sellers” to self-certify that they possess the necessary training. The certification must include a statement that the regulated seller understands each of the requirements that apply under this part and agrees to comply with the requirements. If a pharmacist operates more than one facility, they must submit a self-certification for each facility.

One commonly encountered error is a pharmacy’s failure to maintain a self-certification in violation of the Combat Methamphetamine Epidemic Act of 2005, despite having received a Letter of Admonition from the DEA regarding this requirement.

21 CFR 1314.35 – Training of Sales Personnel

The federal government does not want to encounter a situation in which a pharmacy operator “passes the buck” to an untrained employee in the event of a diversion event. Thus, under 21 CFR 1314.35, the law requires pharmacists to submit a self-certification that anyone within the pharmacy who is “responsible for delivering the products into the custody of purchasers or who deal directly with purchasers by obtaining payments for the products” has undergone the necessary training and understands their legal obligations.

21 CFR 1314.30 – Recordkeeping for Retail Transactions

Under CFR 1314.30, pharmacists must keep detailed records of all scheduled substances they dispense. More specifically, § 1314.30 requires a pharmacy to maintain a “written or electronic list of each scheduled listed chemical product sale that identifies the products by name, the quantity sold, the names and addresses of the purchasers, and the dates and times of the sales.”

Section 1314.30 also imposes requirements for the retail sale of controlled substances. For example, the purchaser must present a valid form of identification and sign either an electronic or hard-copy logbook. A logbook entry must contain the type of substance and the amount sold.

One common instance of this particular violation is when pharmacies fail to display the warning notice on their electronic signature device for pseudoephedrine purchases.

21 CFR 1304.11 – Inventory Requirements

In the interest of ensuring complete knowledge of the substances a pharmacy dispenses and has on hand, the federal government imposes strict inventorying requirements. Section 1304.11 lists the inventorying requirements for pharmacists. More specifically, “each inventory shall contain a complete and accurate record of all controlled substances on hand on the date the inventory is taken, and shall be maintained in written, typewritten, or printed form at the registered location.” Under § 1304.11, pharmacists must take an initial inventory, as well as to conduct an inventory at least every two years. The biennial inventory requirement is a commonly discovered violation in DEA pharmacy audits.

1 CFR 1304.04 – Maintenance of Records and Inventories

Pharmacies are required to keep detailed records of all controlled substances dispensed. Generally, federal regulations impose a two-year recordkeeping requirement for all qualifying pharmacies. However, the extent to which pharmacies must keep records depends, in part, on the type of substance. For example, records for Schedule I and Schedule II substances must be kept separate from all other records. Additionally, inventories and records of Schedules III, IV, and V controlled substances must be maintained separately from all other records of the pharmacy. Alternatively, a pharmacy can store the records such that the information required is readily retrievable.

21 CFR 1304.21 (a) – General Requirements for Continuing Records

Pharmacists routinely conduct inventory checks upon the receipt of controlled substances; however, under federal regulations, this is not enough. Pharmacies must also maintain continuing records after each sale. Section 1304.21 discusses the continuing recordkeeping requirements pharmacists must adhere to. Any pharmacy covered under § 1304.03 “shall maintain, on a current basis, a complete and accurate record of each substance manufactured, imported, received, sold, delivered, exported, or otherwise disposed of by him/her, and each inner liner, sealed inner liner, and unused and returned mail-back package, except that no registrant shall be required to maintain a perpetual inventory.”

Additionally, pharmacies with multiple locations must maintain a separate record for each location. Sub-section (b) provides that “separate records shall be maintained by a registrant for each registered location except as provided in §1304.04(a). In the event controlled substances are in the possession or under the control of a registrant at a location for which he is not registered, the substances shall be included in the records of the registered location to which they are subject to control or to which the person possessing the substance is responsible.”

21 CFR 1305.22 – Procedure for Filling Electronic Orders

Gone are the days where most pharmacies process and fill orders at the same location. In light of this reality, federal law outlines a very specific procedure for filling electronic orders. Under § 1305.22, once a purchaser submits an order, a pharmacy may initially process the order at any location, regardless of the location’s registration with DEA. Following the input of an order, the supplier may distribute the order to one or more registered locations maintained by the supplier for filling. The pharmacy must maintain control of the processing of the order at all times.

However, before filling the order, a pharmacy must:

(1) Verify the signature and the order by using software that complies with 21 CFR Part 1311 to validate the order;
(2) Verify that the digital certificate is valid.
(3) Ensure the validity of the certificate holder’s certificate by checking the Certificate Revocation List.
(4) Verify the registrant’s eligibility to order the controlled substances by checking the certificate extension data.

A pharmacy must maintain an electronic record of every order and track the total number of bulk orders and the date each order was placed.

21 CFR 1311.60 – Recordkeeping

Generally, a pharmacist must keep all records for two years. These records can be kept electronically, provided the recordkeeping mechanism allows for the easy retrieval of orders. Additionally, CSOS certificate holders must maintain a copy of the subscriber agreement that the Certification Authority provides for the life of the certificate.

21 CFR 1311.200 – Pharmacy Responsibilities Pertaining to Annotation Requirements of Electronic Orders and Prescriptions

Given the high volume of electronic orders in the pharmacy industry, the federal government has created a strict protocol for filling these orders. While section 1311.200 imposes several requirements, one of the most commonly missed steps pertains to annotations. Sub-section (f) of § 1311.200 provides that when a pharmacist fills a prescription that would require the pharmacist to make a notation on the prescription if the prescription were a paper prescription, the pharmacist must make the same notation electronically. The pharmacist must also retain the annotation electronically in the prescription record or in related files. When a prescription is received electronically, the prescription and all required annotations must be retained electronically.

21 CFR 1301.74(a) – Other Security Controls for Non-Practitioners; Narcotic Treatment Programs and Compounders for Narcotic Treatment Programs

Before a pharmacist dispenses any controlled substance to a person they do not know to be registered to possess the controlled substance, the pharmacists must make a good faith inquiry either with the DEA or with the appropriate State controlled substances registration agency. This is one of the most common violations discovered during a pharmacy audit, with more than 115 violations last year alone.

21 CFR 1304.22 – Records for Manufacturers, Distributors, Dispensers, Researchers, Importers, Exporters, Registrants that Reverse Distribute, and Collectors

Under § 1304.22, any person who manufactures, distributes, dispenses, imports, exports, reverse distributes, destroys, conducts research with controlled substances, or collects controlled substances from ultimate users must abide by strict recordkeeping requirements. For pharmacies that dispense controlled substances, the following information must be logged:

  • The name of the substance;
  • Each finished form and the number of units or volume of finished form in each commercial container;
  • The number of units of finished forms and/or commercial containers acquired from other persons;
  • The number of units of finished forms and/or commercial containers imported directly by the person;
  • The number of commercial containers distributed to other persons;
  • The number of commercial containers exported directly by the registrant; and
  • The number of units of finished forms and/or commercial containers distributed or disposed of in any other manner by the registrant.

21 CFR 1301.74(b) and 21 USC 832 – Suspicious Orders

Federal law requires pharmacies have a system in place to detect suspicious orders. 21 CFR 1301.74(b) and 21 USC 832 outline these requirements. More specifically, a pharmacy must design and implement a system to disclose to the registrant suspicious orders of controlled substances and report any suspicious orders to the Field Division Office of the DEA as soon as such an order is discovered.

Pharmacies must also notify the DEA of any “significant” theft or loss. This notice must be provided in writing within a day of discovery. Additionally, a pharmacy discovering a significant loss must complete DEA form 106 and submit the form to the Field Division Office.

In determining whether a theft or loss is significant, the DEA considers:

  • The type of controlled substance;
  • The amount lost or stolen;
  • Whether there is any indication that the theft or loss was related to a particular person or employee; and
  • Whether there is a pattern of smaller thefts or losses;
  • Whether the specific controlled substances are likely candidates for diversion; and
  • Local trends and other indicators of the diversion potential of the missing controlled substance.

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