[Federal Register Volume 61, Number 137 (Tuesday, July 16, 1996)]
[Notices]
[Pages 37081-37090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18025]


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DEPARTMENT OF JUSTICE
[Docket No. 94-77]


RX Returns, Inc.; Revocation of Registration

    On August 15, 1994, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration (DEA), issued an 
Order to Show Cause to RX Returns, Inc., (Respondent) of Palm, 
Pennsylvania, notifying it of an opportunity to show cause as to why 
DEA should not revoke its DEA Certificate of Registration, RR0166113, 
and deny any pending applications for renewal of its registration as a 
distributor (disposer), under 21 U.S.C. 823(e), as being inconsistent 
with the public interest. Specifically, the Order to Show Cause alleged 
in relevant part that:
    (1) On March 19, 1992, the Respondent entered into a Memorandum of 
Understanding (MOU) with DEA, where, in exchange for its receiving a 
DEA registration as a distributor (disposer) of controlled substances, 
it agreed to comply with security, inventory, and recordkeeping 
requirements of a DEA registrant;
    (2) In July 1992, a DEA investigation of the Respondent revealed 
numerous recordkeeping and security violations. As a result, on 
September 24, 1992, DEA conducted an informal hearing in which the 
Respondent was given an opportunity to reply to allegations regarding 
violations of 17 recordkeeping and security requirements.

[[Page 37082]]

    (3) In lieu of further administrative proceedings, on June 18, 
1993, the Respondent entered into a second MOU with DEA, in which it 
agreed to correct the 17 alleged violations and to comply with laws and 
regulations relating to the handling of controlled substances.
    (4) On May 5, 1994, DEA attempted to conduct an audit of seven 
controlled substances at the Respondent's firm. However, DEA was unable 
to conduct the audit based upon the Respondent's failure to maintain 
records of the receipt, distribution and/or disposal of controlled 
substances. In addition, DEA again uncovered numerous recordkeeping and 
security violations, most of which the Respondent had agreed to correct 
pursuant to the June 18, 1993, MOU.
    On September 13, 1994, the Respondent, through counsel, filed a 
timely request for a hearing, and following prehearing procedures, a 
hearing was held in Philadelphia, Pennsylvania, on June 13, 14, and 15, 
1995, and continued in Allentown, Pennsylvania, on July 19 and 20, 
1995, before Administrative Law Judge Paul A. Tenney. At the hearing, 
both parties called witnesses to testify and introduced documentary 
evidence, and after the hearing, counsel for both sides submitted 
proposed findings of fact, conclusions of law and argument. Both 
parties were given the opportunity to respond to the other side's 
brief, and counsel for each side submitted a reply brief. On November 
14, 1995, Judge Tenney issued his Findings of Fact, Conclusions of Law 
and Recommendations, recommending that the Respondent's DEA 
registration be continued and no action be taken against it. On 
December 5, 1995, the Government filed Exceptions to Judge Tenney's 
opinion and recommendation, and on December 15, 1995, the Respondent 
filed a brief in support of Judge Tenney's opinion and recommendation. 
On December 20, 1995, Judge Tenney transmitted the record of these 
proceedings to the Deputy Administrator.
    The Deputy Administrator has considered the record in its entirety, 
and pursuant to 21 C.F.R. 1316.67, hereby issues his final order based 
upon findings of fact and conclusions of law as hereinafter set forth. 
The Deputy Administrator adopts, with noted exceptions, the Findings of 
Fact, Conclusions of Law, and Recommended Ruling of the Administrative 
Law Judge, and his adoption is in no manner diminished by any 
recitation of facts, issues and conclusions herein, or of any failure 
to mention a matter of fact or law.
    The Deputy Administrator finds that the Respondent is a disposal 
company founded in 1989 by Mr. Jeffrey Dershem (President), a 
registered pharmacist. The Respondent receives pharmaceutical products, 
to include controlled substances, from various sources or customers, 
such as health care facilities, retailers, and wholesalers. The 
substances are accepted for either destruction or for distribution back 
to the original manufacturer for credit. The President testified before 
Judge Tenney, stating that the Respondent employed, in either a part-
time, full-time, or temporary basis, approximately 60 to 65 people, 
with a payroll of approximately $1.5 million annually.
    In the Summer of 1991, the President contacted the local DEA office 
concerning an application for a DEA registration to handle controlled 
substances. He was informed that, because of the unique nature of the 
Respondent's business, it did not fall under any then existing 
categories of DEA registrants. After negotiating with DEA personnel, 
the President was told to apply for registration for the Respondent as 
a distributor of controlled substances. A local DEA Diversion 
Investigator consulted with management for the Respondent throughout 
the pre-registration process. The Respondent's proposed processing and 
recordkeeping systems initially were found acceptable to the DEA, and a 
preliminary DEA Certificate of Registration was granted to the 
Respondent on September 12, 1991.
    In March of 1992, the Respondent entered into an MOU with the DEA, 
which stated that the Respondent would (1) install storage facilities 
for controlled substances in substantial compliance with the provisions 
of 21 C.F.R. 1301.71 and 1301.72; (2) maintain complete and accurate 
records of all controlled substances received, distributed or destroyed 
as required by 21 C.F.R. Part 1304; (3) inventory all controlled 
substances received and intended for disposal on a DEA Form 41 or 
approved equivalent, and comply with the provisions of 21 C.F.R. 
1307.21; and (4) advise the appropriate DEA office of security measures 
to be taken to prevent diversion of the controlled substances awaiting 
disposal. In return, the DEA agreed (1) to issue a registration for a 
distributor handling controlled substances in Schedules III through V, 
to the Respondent, when installed security had been approved by DEA; 
and (2) to review with the Respondent the adequacy of its proposed 
recordkeeping system, noting that ``necessary modifications to the 
system proposed by the [Respondent would] be discussed with [it].'' 
This MOU was entered into because there were no specific DEA 
regulations governing disposers of controlled substances in the Code of 
Federal Regulations. Although not yet finalized, on August 23, 1995, 
the DEA did publish proposed regulations applicable to disposers of 
controlled substances. See 60 FR 43732 (1995).
    On June 22, 1992, the DEA conducted an on-site review of the 
Respondent's facility. Investigators discovered that the Respondent was 
storing controlled substances and non-controlled substances together 
inside the controlled substance cage, in violation of DEA regulations. 
By letter dated July 22, 1992, the President was reminded that on 
October 10, 1991, and on June 25, 1992, the DEA had informed him not to 
store controlled substances and non-controlled substances together, but 
rather to keep them segregated, as required by 21 C.F.R. 
1301.72(b)(8)(ii).
    On July 22, 1992, after having provided the Respondent advanced 
notice, the DEA conducted its first official inspection of the 
Respondent's facility and business operations. A DEA Diversion 
Investigator (Investigator) testified before Judge Tenney, stating that 
the DEA was unable to complete an audit of controlled substances during 
this inspection because of the Respondent's inaccurate or incomplete 
records. Further, many recordkeeping and security violations were 
discovered, including the continued storage of non-controlled and 
controlled substances together, the lack of an initial inventory of 
controlled substances, the lack of receiving records and distribution 
records, the failure to submit ARCOS reports, the failure to record the 
exact quantity of controlled substances received, and the improper 
preparation of DEA Form 41. Further, the Investigator testified about 
the security concerns created by this lack of documentation, stating 
that such a lack of tracking records created a ``greater likelihood of 
things being diverted just in between the customer and the firm.'' She 
concluded that ``[o]verall the [processing] system left a lot of 
loopholes that an employee could, if they (sic) so felt like it, 
possibly get access to any of the drugs and the firm would probably not 
know about it because it sometimes took months for things to be 
processed even into their computer for them to get an inventory.'' The 
DEA recorded seventeen violations identified during this inspection.
    After being served with a Notice of Hearing listing all seventeen 
violations, the Respondent met with the DEA at an informal 
administrative hearing on

[[Page 37083]]

September 24, 1992. At this meeting, representatives from the DEA and 
the Respondent discussed the seventeen violations and the Respondent's 
proposed remedies for these violations. Specifically, the DEA 
representatives emphasized that the dates of receipt and shipment of 
controlled substances, and the maintenance of precise receiving 
records, were needed accountability systems given the Respondent's 
business.
    As a result of this hearing, the Respondent and the DEA entered 
into a second MOU, in which the Respondent agreed to correct all 
seventeen cited violations and to comply with all applicable laws and 
regulations regarding controlled substances. For example, the MOU notes 
that the Respondent had (1) ``[f]ailed to properly segregate Schedule 
3-5 substances from non-controlled substances, * * * within the DEA 
approved overnight storage cage as required by 21 CFR 
1304.72(b)(8)(ii); (2) ``[f]ailed to maintain receiving records 
(packing slips, invoices) and DEA-41 destruction forms for at least two 
years from the date of such record for inspection and copying by 
employees of DEA, as required by 21 CFR 1304.04(a)''; (3) ``[f]ailed to 
maintain inventories and records of controlled substances in Schedules 
3, 4, and 5 either separately from all other records of the 
registrant[,] or in such form that the information required is readily 
retrievable from the ordinary business records of the registrant, as 
required by 21 CFR 1304.04 ((f)(2)''; (4) (4) ``[f]ailed to maintain on 
a current basis a complete and accurate record of each such substance * 
* * received, sold, delivered, or otherwise disposed of as required by 
21 CFR 1304.21 (a)''; and (5) ``[f]ailed to maintain records showing 
the actual quantity of controlled substances received, including the 
date of receipt, as required by 21 CFR 1304.21 (b) and (c).''
    This MOU also memorialized the corrective action needed, to 
include: (1) ``Respondent will obtain receipt documents (i.e., invoices 
or packing slips) from its suppliers and maintain these records for at 
least two years from the date of each record for inspection and copying 
by employees of DEA as required by 21 CFR 1303.04(a)''; (2) 
``Respondent will maintain on a current basis a complete and accurate 
record of each such substance * * * received, sold, delivered, or 
otherwise disposed of as required by 21 CFR 1304.21(a)''; (3) 
``Respondent will maintain records showing the actual quantity (i.e. 
number of dosage units, volume of liquid, etc.) received, including the 
date of receipt, as required by 21 CFR 1304.23(b) and (c)''; and (4) 
``Respondent will maintain records showing the actual quantities (i.e. 
number of dosage units, volume of liquid, etc.) of controlled 
substances distributed to other persons, including the date of 
distribution, and the name, address and DEA registration number of the 
person or firm to whom the distribution was made, as required by 21 CFR 
1304.23 (b) and (e).'' The agreement also required the Respondent to 
notify the local DEA office of any proposed change to its current 
disposal site. This MOU was signed on June 18, 1993.
    The DEA allowed the Respondent one-and-a-half years to correct the 
violations set out in this second MOU, for a second inspection was not 
conducted until May of 1994. Again, however, the DEA found further 
problems with the Respondent's processing, recordkeeping, and security 
systems. The investigators were unable to conduct an audit, initially 
because of a lack of records showing the date of distribution of the 
controlled substances from the Respondent's location to other 
destinations. Also, the DEA noted in relevant part that (1) the 
Respondent was accepting patient prescription medications for 
destruction, after having been informed by DEA representatives at the 
informal hearing that the Respondent was not authorized to accept such 
medications; (2) the Respondent had not conducted a biennial inventory 
of all controlled substances in the Respondent's warehouse in September 
1993, the date the inventory should have been conducted as required by 
DEA regulations; (3) the Respondent's computer records had indicated 
that the Respondent had shipped out controlled substances, although the 
products actually were found at the Respondent's warehouse; (4) the 
Respondent had destroyed controlled substances at a destruction site 
different from the one approved by the DEA, in violation of the second 
MOU, which had stated that if the Respondent wished to change its 
disposal site, it was required to first notify the local DEA Division 
Office; and (5) that the Respondent had constructed a Schedule II vault 
without prior approval of the local DEA office, for by regulation, any 
vault that is to be used to store Schedule II controlled substances 
must first be approved by the DEA before being used for such storage.
    Also, the Investigator testified before Judge Tenney, stating that 
Ms. Smith had informed her that patient prescriptions were not entered 
in the computer system, although such substance had been received at 
the Respondent's location. The Investigator stated that this 
recordkeeping practice led her to the following conclusion:

    If I had been trying to do an audit before this, this would have 
completely killed it because our audits are basically a record of 
all controlled substances that go through a company. If things are 
coming in that we don't know about, then we can't really tell if 
diversion would be occurring.

    Concerning an audit attempt in May of 1994, the Investigator also 
stated that ``[t]heir records were so bad, I couldn't put together 
numbers because I had no accurate numbers on a large variety of records 
* * *. The May, 1994 audit was the follow up to the 1992 audit * * *. 
Our follow up was to say, enough's enough. We have three years here of 
a firm not being in compliance.''
    However, the Investigator also testified that, since 1992, the 
Respondent had corrected a prior error by reporting to the ARCOS unit 
as required. Yet, due to the problems with the actual recording of 
shipment dates, the Investigator opined that the ARCOS reports were 
probably inaccurate.
    As for other documentary problems, the Investigator also testified 
that the Respondent's personnel continued to improperly prepare the DEA 
Form 41, stating that the documents reviewed still failed to accurately 
reflect burned products and actual quantities of substances destroyed. 
Specifically, the Investigator recounted that ``I have a whole lot of 
forms that don't give me the product name, much less an accurate idea 
of what these numbers represent when they're in the columns saying * * 
* controlled substance doses [, and] controlled substance use.''
    In response, Deborah Smith testified before Judge Tenney, stating 
that she was the Respondent's executive vice president and general 
manager, and that she was responsible for insuring that the 
Respondent's operation complied with DEA regulations and requirements. 
During the course of her testimony, a videotape, which has been 
prepared the day before the hearing, was presented. The videotape 
demonstrated the processes used when a product is returned by a 
customer to the Respondent's facility. The Investigator confirmed that 
this product-processing system was in place when she conducted the 
investigation in January of 1995.
    Specifically, as to the handling of controlled substances, Ms. 
Smith testified that, prior to sending the Respondent pharmaceutical 
products, a customer had to first contact the Respondent to receive a 
Return Authorization Number. If controlled substances were to be 
shipped, the

[[Page 37084]]

customer would receive an authorization number ending in a ``5.'' 
Customers were then sent a return label preprinted with the 
authorization number, and the customers were instructed to place the 
label on the front of all boxes. The customer was also sent an 
information packet, which instructed the customer to conduct an 
inventory of all scheduled drugs and to send the inventory with any 
shipment containing controlled substances. Ms. Smith testified that 
controlled substances received without customer inventories were to be 
returned to the customer with a letter identifying the flaw in the 
shipment. The customers were also informed that the Respondent was not 
authorized to receive Schedule II controlled substances, and if such 
substances were shipped, they would be returned to the customer. 
Customers were further instructed to place controlled substances in a 
sealed pouch in the first box of any shipment. Ms. Smith stated that, 
when a customer's shipment containing controlled substances arrives at 
the Respondent's location, the employees in the receiving department 
note the return authorization number ending in a ``5,'' and know to 
immediately take the package to the security cage.
    Ms. Smith also stated that, after the controlled substances arrive 
at the security cage, another employee authorized to handle such 
substances would take a count of all controlled substances. If the 
physical count did not match the customer's inventory, the Respondent 
would send the customer a letter identifying the discrepancy. After 
inprocessing the controlled substances, the product would then be 
stored in the security cage according to proposed disposition (i.e. 
return to manufacturer for credit or destroy) until such time as the 
products would be shipped from the Respondent's facility.
    When controlled substance are to be shipped, the product is 
reinventoried and information regarding the destination of the shipment 
would be entered into the secured computer system. The controlled 
substances would then be packaged for shipment inside the cage, taken 
to the loading dock manager, and put on a truck leaving the facility 
before the close of that business day. If the products were to be 
destroyed, they are taken to an incinerator where one of the 
Respondent's officers, usually the President, would witness the burn. A 
signed, computer-generated DEA Form 41, would then be sent to DEA, and 
copies would be retained in the customer's file and at the security 
cage.
    Ms. Smith testified that, if a product was not in its original 
packaging, the Respondent's personnel would use a reference book to 
obtain the information needed to complete the computer records as to 
the identity of the product. Once the information had been located, it 
would be entered into the computer database so that records for 
products not in manufacturer packaging contain the same information as 
records for products in manufacturer packaging. This newly developed 
system replaced the less precise computer entry of ``repackaged 
goods,'' which the DEA had found lacked the necessary processing 
information.
    Before Judge Tenney, Ms. Smith addressed the DEA-identified 
discrepancies. Specifically, she testified that she had understood from 
discussions with the DEA that the Respondent was allowed to accept 
patient medications, as long as relevant records were kept separate 
from the main recordkeeping system. However, after the Investigator 
informed her that the Respondent was not allowed to accept patient 
prescriptions under any conditions, the Respondent ceased accepting 
such drugs. Ms. Smith testified that ``[i]f any of the agents that are 
at our facility come back and make a recommendation to me, I make a 
procedural change to accommodate exactly what they want me to do.'' The 
Respondent also implemented a procedure to return the patient-
prescription substances with a reminder to customers, informing them of 
the Respondent's inability to process such substances.
    As to the lack of a biennial inventory in September of 1993, Ms. 
Smith testified that she had informed the DEA that the Respondent was 
conducting monthly inventories, and she was under the impression that 
those inventories would fulfill the biennial inventory requirement. 
However, Ms. Smith testified, and the Investigator concurred, that 
after the Investigator informed her of the need for a separate biennial 
inventory, and after the Respondent's new computer system was in place, 
such an inventory was conducted in October of 1994.
    Ms. Smith testified in great detail concerning the shipping and 
receiving documents utilized by the Respondent's company personnel. She 
stated that during the January 1995 inspection, the Investigator's 
interpretation of the shipping records continued to be misleading. The 
DEA investigators had failed to ask the appropriate personnel at the 
Respondent's firm why the shipping records, as read by the 
Investigator, appeared to contradict the actual existence of the 
substances under review inside the security cage. For example, in one 
instance, Ms. Smith testified that the Investigator had misread the 
computer record, thinking that a substance had been shipped, when in 
fact it was still at the Respondent's warehouse awaiting the customer's 
authorization to return the substances. Ms. Smith testified that the 
shipping records would have shown that the controlled substances in 
question had never left the warehouse, and, in fact, were awaiting 
authorization from the customer for the return shipment.
    As to the violation of destroying controlled substances at a 
facility not previously disclosed to the DEA as required, Ms. Smith 
admitted that the Respondent had sent controlled substances for 
destruction to a new facility without first notifying the DEA. She 
stated that the incident had been a trial run because the Respondent 
needed to find a new destruction site. Due to a change in the 
municipality code, the prior destruction company was prohibited by law 
from accepting the Respondent's destruction business.
    The Investigator also testified that the Respondent had violated 
the June 1993 MOU when it had failed to destroy controlled substances 
during a ten-month period. The MOU stated: ``Respondent will provide 
periodic monthly reports (DEA Form 41's) of controlled substance 
disposals to the DEA Philadelphia D.O. Respondent agrees that such 
disposals will occur on the last Thursday of each month * * *. 
Respondent does not need to notify the Philadelphia Division Office if 
it elects not to destroy controlled substances during any particular 
month.'' Although admitting that ten months had elapsed prior to 
destruction of controlled substances, Ms. Smith strongly denied that 
the accumulation of controlled substances for this ten-month period 
compromised the security of the Respondent's storage cage. She stated 
that the ten-month period was the time taken by the President to 
locate, to inspect, and to conduct a background check of another 
destruction site. Ms. Smith also testified that she had provided DEA 
with a verbal notification of the change in location, but had not 
provided written verification. Also, the Investigator had agreed that, 
after the initial destruction at the previously undisclosed facility, 
the Respondent had conducted subsequent destructions at a DEA-disclosed 
facility in compliance with the regulation and the MOU.
    As to the problems identified by the Investigator concerning the 
DEA Form

[[Page 37085]]

41, Ms. Smith testified that the old system of handwriting the Form 
41's had been changed to a computer-driven process. Specifically, the 
Respondent's computer system generates the form, and the current 
process was created and implemented just prior to the May 1994 DEA 
inspection. Ms. Smith testified that during that inspection, she had 
showed the Investigator a sample of the new DEA Form 41, and that the 
Investigator had told her that ``I don't have a problem with it.''
    Yet during the hearing before Judge Tenney, the Government 
presented a DEA Form 41 dated February 28, 1995, stating that the form 
reflected destruction of ``Repackaged DEA control C-III'' substances. 
As the Investigator testified, these entries were useless; for, 
although DEA would know that ``1.00 item'' of a Schedule III substance 
was destroyed per this document, the DEA still would have no idea what 
the controlled substance was, what the dosage unit was, and what 
quantity was contained in the destroyed package. From this document, 
the DEA remained unable to create an accurate count of the precise 
controlled substance actually destroyed. Thus, the Investigator 
concluded that the DEA continued to have problems with the actually 
completed DEA Form 41's being submitted by the Respondent, despite 
approving, in theory, their new form.
    As to the construction of a Schedule II storage vault, Ms. Smith 
testified that nothing was stored in that vault. She stated, ``It's not 
operational in any way, shape, or form.'' Further, the employee who 
operates the Respondent's controlled substances storage area also 
confirmed that nothing was stored in the Schedule II storage vault. The 
Government presented no evidence to the contrary.
    As a result of the May 1994 inspection results, the DEA issued an 
Order to Show Cause, seeking to revoke the Respondent's registration. 
In response to this order, the Respondent invited the DEA Diversion 
Investigators to visit its facility for another inspection to verify 
that the Respondent had achieved compliance with the DEA regulations. 
The DEA conducted that inspection in January of 1995, and, for the 
third time, DEA Diversion Investigators inspected the security systems 
and tried to conduct an inspection of certain controlled substances.
    As to the Respondent's receiving and initial customer inventory 
documents, the investigators found that the Respondent had revised the 
documents, ``and it looked like the firm was, in good faith, doing 
everything it could to get such documents from its customers.'' 
Further, as previously requested by DEA personnel, the Respondent's 
employees had dated the receiving documents with the actual date of 
receipt of controlled substances at the Respondent's facility, rather 
than using the date the substances were being handled and processed at 
the Respondent's facility. On cross-examination, the Investigator 
testified that ``the receiving system that the firm had is one thing 
that I found in January that I felt they had made advances on and that 
we could accept what they were proposing.''
    However, the investigators reported, in significant part, a 
substantial number of discrepancies still noted during the January 1995 
inspection. Specifically, (1) DEA personnel found that the Respondent's 
records were incomplete and inaccurate, failing to list drug names, 
correct quantities of products on-hand or shipped, with discrepancies 
being noted even among the Respondent's own internal tracking documents 
covering the same period of time. (2) DEA personnel had difficulty 
tracking controlled substances through the Respondent's records, 
because the shipping records did not show the date of shipment of 
controlled substances from the firm. (3) DEA personnel again found 
Schedule II controlled substances at the Respondent's facility and 
determined that those substances had been at the Respondent's location 
for several months. Further, Schedule II products, as well as 
controlled substances from Schedules III, IV, and V, were found at the 
Respondent's warehouse in an unsecured area. (4) DEA personnel found 
that the Respondent had accepted shipments of controlled substances 
from customers lacking active DEA registrations. Specifically, in one 
instance a controlled substance was shipped from a company in December 
of 1994, but that company's DEA registration was retired by DEA on 
April 1, 1991. (5) Investigators also reported that the Respondent's 
shipping records failed to show the actual DEA-registered name of some 
of the receiving registrants. As to this point, the Investigator stated 
``I think there's something wrong in the computer system that is giving 
me a['] shipped to['] name[,] and the firm is saying, `We don't take 
back controlled stuff.' ''
    Further, the Investigator testified that after the January 1995 
inspection, the Respondent's attorney had provided her with an update 
of the October 1994 biennial inventory. Specifically, she stated that 
the Respondent's counsel wrote that ``the biennial inventory failed to 
include 465 items that were on hand prior to October 10, 1994, and 79 
items that came into the firm during the two-week inventory period.'' 
According to the Investigator, such a discrepancy ``[m]akes the 
inventory [in]complete and inaccurate as far as we're concerned''. The 
Investigator opined that missing 465 items when taking or recording a 
physical inventory creates a potential for diversion; for ``somebody 
could have walked off with all 465 items'' without detection.
    However, the Respondent's employee, who had provided the 
Investigator with a copy of the October 1994 biennial inventory, 
testified before Judge Tenney, stating that the failure to list the 465 
items from a single customer was a result of the Respondent's employees 
conducting an inventory of those products at the customer's location. 
Ms. Smith testified that, in this unusual case, this bankrupt customer 
no longer had employees to conduct the customer-prepared inventory 
normally required by the Respondent prior to accepting a shipment of 
controlled substances. Instead, the Respondent's employees had used a 
stand-alone computer system to enter the date from this inventory, and 
that data had not been integrated into the Respondent's computer 
network at the time of the biennial inventory. Rather, the data was 
maintained on the stand-alone computer system. The employee also 
testified that the remaining items did not appear on the October 1994 
inventory because they were received while the inventory was being 
taken, and these products had not been counted during the taking of 
this inventory.
    Yet the Investigator testified that the October 1994 inventory was 
deficient, because it failed to indicate a time certain for 
accountability purposes, as required by regulation. One of the 
Respondent's employees testified that in the future the biennial 
inventory would be conducted over a weekend, when no products would be 
processed into the Respondent's facility, and the exact time of the 
inventory would be noted on the report. However, the Investigator also 
testified that the Respondent had yet to submit a verifiable biennial 
inventory, as required, despite being registered with the DEA since 
September 12, 1991. The Investigator testified that, lacking such an 
inventory, the DEA remains unable to determine whether any diversion of 
controlled substances has taken place at the Respondent's location.
    The Investigator also testified about her efforts to inspect the 
controlled substances on hand, to determine whether her inspection 
results would coincide with inspection documents provided by the 
Respondent. The

[[Page 37086]]

documents listed the controlled substances that should be on-hand in 
the security cage on the day selected for the inspection. However, the 
Respondent's inventory documents did not match the inventory results 
reported after DEA personnel conducted their independent physical count 
of the substances in the storage area.
    Ms. Smith testified that on the first day of the January 1995 
inspection, she had introduced herself to the DEA inspection team and 
had informed them that she was the Respondent's contact person during 
the inspection. However, she testified that the Investigator had failed 
to inform her of the problems DEA investigators were having in reading 
the Respondent's reports and collecting the data they needed to 
complete the controlled substances inspection. Specifically, she stated 
that the Investigator had reviewed the Respondent's records, noted an 
inability to determine the name or quantity of specific substances 
tracked in the records, yet had failed to inform her or any other of 
the Respondent's management personnel of the problems.
    Ms. Smith stated that once she became aware of the specific data 
the DEA wanted to retrieve from the Respondent's records, she insured 
that the report contained such information. Specifically, the 
subsequent report clearly contained the identity of the controlled 
substance, the quantity, and other pertinent information requested by 
the DEA personnel. She also testified that such information was 
recorded in the Respondent's daily records, but that the person 
preparing the DEA-requested reports had failed to access the various 
computer fields needed to generate the statistical information sought 
during the inspection. Further, before Judge Tenney, Ms. Smith reviewed 
in detail the then current documentation used in the receiving and 
shipping process, noting that the substances could be tracked if the 
correct document fields were retrieved to create the report.
    An employee of the Respondent's also testified concerning his entry 
of data, to include the name, strength, and dosage for every controlled 
substance product received in the secured storage area. He confirmed 
Ms. Smith's testimony concerning the extent of information recorded in 
the Respondent's computer system for tracking the processing of 
controlled substances through the Respondent's facility.
    As for the Schedule II substances found by the DEA investigators, 
Ms. Smith testified that the Respondent's personnel had retrieved six 
truckloads of pharmaceutical products from a bankrupt customer. The 
Respondent had contracted to remove all pharmaceutical products from 
the customer with the exception of Schedule II controlled substances. 
Security guards at the hospital had informed the Respondent's employees 
that all Schedule II products had been collected and were stored in a 
vault at the customer's facility. The Respondent's personnel did not 
know that there were some Schedule II products intermingled with the 
truckload of products retrieved until two months after the products had 
been received and personnel were processing them. Ms. Smith testified 
that, when the Schedule II products were discovered, the Respondent's 
personnel promptly shipped them back to the customer's attorney for 
processing, since the Respondent's registration did not authorize the 
handling of Schedule II drugs.
    The Respondent's personnel did not deny that other Schedule II 
substances were found at the warehouse in an unsecured area. However, 
Ms. Smith testified that the boxes containing the Schedule II 
substances had not been authorized for shipment to the Respondent, and 
that the boxes were not properly labelled as containing controlled 
substances. During her testimony, Ms. Smith provided evidence of the 
Respondent's pre-shipment contact with a customer, but here, since the 
pre-shipping procedures had with a customer, but here, since the pre-
shipping procedures had not been followed by these customers, the 
Respondent's normal safeguards had failed to prevent the improper 
storage of the Schedule II substances. At the time of the DEA 
inspection, the boxes in question had not even been opened, since the 
Respondent had intended to return all of the unauthorized boxes to the 
senders. However, since the senders were in bankruptcy status, the 
Respondent was having difficulties determining were to send the boxes.
    Further, as to the shipping of controlled substances to customers 
lacking active DEA registrations, Ms. Smith denied that the Respondent 
shipped controlled substances to such entities. She testified that the 
Investigator had failed to raise this concern to her, and that, if the 
Investigator had asked her for the shipping information, she could have 
pulled the shipping document from the computer, which would have 
reflected that the substances in question had actually been shipped to 
a location with an appropriate DEA registration number.
    As to the receipt of controlled substances from a company lacking a 
DEA registration, Ms. Smith testified that the intent was always to 
receive controlled substances only from registered entities. However, 
in response to the Investigator's concerns, Ms. Smith testified that a 
procedure was recently adopted that required customers to send a copy 
of their DEA Certificate of Registration prior to being authorized to 
actually ship substances to the Respondent's location. The copy, which 
would reflect the active status of the certificate, is then placed in 
that customer's file.
    Finally, evidence was presented, demonstrating that in October of 
1991, the Respondent had hired a consultant (Consultant) to design and 
develop its computer database system. The Consultant testified before 
Judge Tenney about the various stages of development and about the on-
going modifications required as the company itself developed. For 
example, in April of 1994, a bar code system was added. Every product 
processed by the Respondent was labelled with a bar code, and then, 
``if the product got misplaced in the warehouse, all the personnel 
needed to do was pick up the product, scan it in, and the computer 
would be able to identify where the product belongs, who entered the 
product, when it was entered [,] and so forth.'' The Consultant 
testified that this system was implemented as a security measure and to 
enhance efficiency. The Consultant also stated that, because the 
Respondent was such a unique business, there was no existing computer 
software on the market that it could purchase to do its inventory, and 
that ``it was a very complex system to write.''
    The Consultant also testified that, as of October of 1994, the 
computer system tracks all DEA product coming into the Respondent's 
facility, shipped out of the facility, or destroyed, and tracks product 
that remained in the Respondent's warehouse awaiting the customer's 
disposition orders. He opined that the records related to all of these 
processes were readily or easily retrievable. He also stated that he 
had heard the testimony concerning problems in retrieving data at the 
request of DEA in October of 1994, and he opined that such problems 
would be common when a company was in the process of making a system 
conversion such as the one the Respondent was making in October of 
1994. In conclusion, the Consultant testified that, given the tests 
that had been run since the conversion, he was ``confident that DEA 
products are being tracked accurately from the time they enter the 
facility until the time they leave.''

[[Page 37087]]

    The Respondent also presented evidence demonstrating that pre-
employment criminal records checks are performed, and that limited 
access to controlled substances is effectuated by limiting access to 
the work area where controlled substances are handled and stored. 
Further, the Investigator testified on cross-examination that the 
Respondent had installed sufficient physical security equipment.
    Pursuant to 21 U.S.C. 824(a)(4), the Deputy Administrator may 
suspend or revoke a DEA Certificate of Registration and deny any 
pending application for such registration, if he determines that the 
registrant has committed such acts as would render his continued 
registration inconsistent with the ``public interest.'' In this case, 
to determine the public interest, the following factors specified in 21 
U.S.C. 823(e) are to be considered:
    (1) maintenance of effective controls against diversion of 
particular controlled substances into other than legitimate medical, 
scientific, and industrial channels;
    (2) compliance with applicable State and local laws;
    (3) prior conviction record of registrant under Federal and State 
laws relating to the manufacture, distribution, or dispensing of such 
substances;
    (4) past experience in the distribution of controlled substances; 
and
    (5) such other factors as may be relevant to and consistent with 
the public health and safety. These factors are to be considered in the 
disjunctive; the Deputy Administrator may rely on any one or a 
combination of factors and may give each factor the weight he deems 
appropriate in determining whether a registration should be revoked or 
an application for registration denied. See Henry J. Schwarz, Jr., 
M.D., 54 FR 16422 (1989).
    Absent evidence which raises the issues of (1) a prior conviction 
record, (2) compliance, or lack thereof, with State and local law, and 
(3) the Respondent's past experience in distributing controlled 
substances, the Deputy Administrator finds that only factors one and 
five are relevant in determining whether the Respondent's continued 
registration would be inconsistent with the public interest. As to 
factor one, ``maintenance of effective controls against diversion,'' 
the Respondent presented extensive evidence of its current physical 
security measures, to include a videotape of the exterior and interior 
of its facility, and testimony concerning its security cage 
construction. Although there was evidence presented of prior physical 
security concerns involving the relocation of the security cage, the 
Investigator testified that such concerns have been remedied by the 
Respondent's corrective action, to include installation of additional 
bars over the skylights and mesh over the cage door to preclude theft 
of controlled substances from the security cage. Further physical 
security controls were also implemented, to include an extensive bar 
code system to assist in tracking controlled substances through the 
Respondent's warehousing process.
    However, the Government has presented evidence of a lack of 
accurate and precise accounting and recordkeeping controls, resulting 
in the Government's inability to determine whether or not diversion had 
occurred. Specifically, the Respondent's first biennial inventory was 
inaccurate and incomplete, for it failed to account for approximately 
500 controlled substances. Such a failure puts into question the 
Respondent's inventory practices, for if those substances were 
unaccounted for at the time of the inventory, then safeguards to 
prevent diversion were, arguably, equally ineffective, given the fact 
that the Respondent failed to identify the actual existence of these 
substances in its possession at the time of the inventory. Further, 
although disputed, the Investigatory testified that she was unable to 
reconcile the Respondent's records with substances on hand when she 
conducted her inspection in January of 1995. She also testified that, 
for the four years in which the Respondent had been a registrant, DEA 
had been unable to ever effectuate an accountability audit. Such a 
problem again calls into question the Respondent's accountability 
procedures for keeping an accurate count of controlled substances 
handled on its premises during any given timeframe. If controlled 
substances are on the Respondent's premises without knowledge of the 
Respondent's personnel, then it becomes questionable whether the 
Respondent's security procedures are adequate to prevent diversion of 
such unaccounted for controlled substances.
    The Government also presented evidence that in January of 1995, 
Schedule II controlled substances were found on the Respondent's 
premises, despite the Respondent's lack of authorization to handle such 
substances. To further aggravate the situation, the substances were 
found in unopened boxes outside the secured cage, and evidence was 
presented to establish that they had been in an unsecured location for 
at least several months. Further, the substances had not been accounted 
for or processed through the Respondent's records, making their 
accountability impossible during this time. Such lack of action on the 
part of the Respondent resulted in a failure of the system to safeguard 
the substances and to prevent their diversion.
    The Respondent's response to the Investigator's testimony was to 
present evidence that one customer's Schedule II controlled substances 
were received by Respondent improperly, and that, because of the 
customer's bankrupt status, the Respondent had had difficulty 
determining where to return the substances. However, in conflict with 
this characterization, the Respondent also presented evidence that 
established that the Respondent's employees had actually conducted an 
inventory of this customer's returned product at the customer's 
location prior to boxing and shipping the goods to the Respondent's 
warehouse. Therefore, the Respondent should have known what substances 
were in the boxes packed by its own employees. If not, then the unknown 
boxes perhaps should have been processed first to properly identify 
what substances the Respondent had taken possession and control of as a 
result of this business relationship.
    The Deputy Administrator finds that the Respondent's failure to 
know it had Schedule II substances in its possession for several 
months, coupled with its cavalier storage of unknown substances outside 
of its security cage, results in a finding that the Respondent has 
failed to act consistent with the responsibilities inherent in a 
registrant's status. Specifically, a registrant is charged with 
knowing, in an expeditious manner, what controlled substances are in 
its possession, and with affording those substances the necessary 
protection required to prevent diversion. In this instance, the 
Respondent did not know it had Schedule II substances, did not open and 
identify the substances it had received for several months, and had 
failed to maintain effective controls over these Schedule II substances 
for a protracted period of time. Such conduct fails to result in ``the 
maintenance of effective controls against diversion.''
    As to factor five, ``such other factors as may be relevant to and 
consistent with the public health and safety,'' the Deputy 
Administrator concurs with Judge Tenney's finding that the basis for 
measuring the success of the Respondent's past experience is rooted in 
the 1992 MOU, and the 1993 MOU. The Deputy Administrator acknowledges 
that, at the time of the first MOU, the DEA did not have

[[Page 37088]]

regulations in place which specifically addressed the Respondent's 
business. The MOU acknowledges this fact by stating that ``this 
registration as a DISTRIBUTOR is an interim measure until such time as 
the proposed administrative actions are completed. At that time, the 
distributor registration will be converted to the new category of 
registration as provided under the law.'' The Deputy Administrator 
agrees with Judge Tenney's interpretation of this provision of the 1992 
MOU, when he writes ``[i]t indicates that the Respondent's business is 
relatively new, and that the DEA is in the process of proposing 
guidelines under which to register disposers of controlled substances. 
Furthermore, * * * [it] suggests that the DEA and Respondent would have 
to work together [] so that Respondent could fulfill its obligations 
with respect to the recordkeeping and security obligations of a DEA 
registrant.''
    The record provides evidence of the DEA and the Respondent working 
together to accomplish the goals of the 1992 MOU. In July of 1992, a 
DEA inspection resulted in the identification of numerous 
improprieties, the most significant of which was the DEA's inability to 
conduct an accountability audit of controlled substances due to the 
lack of documentation that would facilitate the DEA's need to track the 
receipt and disposition of controlled substances through the 
Respondent's facility. The Deputy Administrator agrees that such a lack 
of verifiable accountability creates a greater likelihood of diversion, 
for the Respondent, at that time, had not created an accountability 
system to the degree of specifically needed to maintain a continuous 
track record of the controlled substances flowing through its facility. 
Yet, in the spirit of the 1992 MOU, rather than take action to revoke 
the Respondent's registration, the DEA held in informal administrative 
hearing on September 24, 1992, resulting in the creation of a second 
MOU dated June 18, 1993.
    The second MOU spelled out 17 problems found by the DEA during the 
1992 inspection. Contrary to the testimonial evidence provided by the 
Respondent's witnesses, the Deputy Administrator finds that these 
violations are identified with a degree of specificity necessary to 
enable the Respondent to initiate corrective action. These 
discrepancies memorialize the fact that the DEA, after conducting an 
inspection of the Respondent's physical facility and accountability 
procedures, was unable to conclude that adequate security measures were 
in place to preclude diversion of controlled substances, because the 
DEA could not verify through an accountability audit, that the 
Respondent handled controlled substances in such a manner as to 
preclude diversion of the substances while in its facility. But the MOU 
did not stop there, for the parties also memorialized in detail the 
corrective action the Respondent needed to take.
    In May of 1994, the DEA conducted another inspection of the 
Respondent's facility, and the record demonstrates that the 
Investigator was again unable to conduct an accountability audit. 
Although acknowledging the various actions found to be in violation of 
the 1993 MOU, the Deputy Administrator is most concerned with the 
inability of the DEA investigators, with the assistance of the 
Respondent's employees, to conduct an accountability audit. The 
evidence concerning the imprecise method in which the Respondent 
documented the controlled substances flowing through its facility 
during this time, as ``repackaged goods'' lacking an exact identity and 
count, was justifiably found to be in violation of the agreed 
accountability procedures defined with specificity in the 1993 MOU.
    As to the issue of the construction of the Schedule II vault, the 
Deputy Administrator agrees with Judge Tenney. Although the relevant 
rule specifies that a vault must be constructed to certain 
specifications and approved by the DEA prior to using it to store any 
Schedule II drugs, the record clearly demonstrates that the Respondent 
has not stored any Schedule II substances in the vault. Further, Judge 
Tenney noted that ``21 CFR 1301.71(d) permits, but does not require, 
registrants to submit proposed security systems to the Special Agent in 
Charge in the region in which the system is located. * * *'' The Deputy 
Administrator agrees that ``[s]ince there is nothing in the regulations 
that requires a registrant to obtain DEA approval before building the 
vault, there has been no breach.''
    The Deputy Administrator also notes that, again in the spirit of 
cooperation that permeated the relationship between this Respondent and 
the DEA, the DEA investigators, while this matter was pending before 
Judge Tenney, again conducted an inspection of the Respondent's 
facility in January of 1995. Yet against the DEA investigators were 
unable to complete an accountability audit, finding the Respondent's 
records incomplete and inaccurate. Specifically, the record contains 
contemporaneously produced documents for DEA's inspection which lacked 
quantity counts, stating instead, for example, that a ``repackaged 
good'' of a Schedule III substance had been destroyed. Such 
documentation failed to provide the investigator with the exact 
identity and quantity of the Schedule III substance thus destroyed, in 
violation of both DEA regulations and the 1993 MOU. Lacking the degree 
of specificity necessary to enable the DEA investigators to conduct an 
accountability audit, the records were found deficient. Significant is 
the fact that the DEA investigators could not reconcile an audit of 
substances on hand by using the documents presented to the DEA 
employees for that purpose. From the previous four years of discussions 
and MOUs, the DEA had clearly defined its concern over the 
accountability of the respondent for the receipt, processing, 
distribution, or destruction of controlled substances. DEA's needs were 
clearly defined, yet the Respondent's personnel were unable to present 
documents showing that it conducted its business in a manner consistent 
with the requirements of a DEA registrant.
    However, evidence was presented by the Respondent, demonstrating 
that a multitude of information may have been available at the time of 
the January 1995 inspection, if the DEA only had requested specific 
data from the Respondent's employees. A significant issue in dispute in 
this case was whether the availability of such evidence in the 
Respondent's computer system equalled the ``readily retrievable'' 
standard established in DEA regulations for such recordkeeping. The 
Deputy Administrator agrees with Judge Tenney's conclusion that ``it is 
implicit from the definition of the term `readily retrievable' that the 
DEA recognizes that records may be kept by `automated data processing 
systems or other electronic or mechanized recordkeeping systems.' See 
21 CFR 1304.02(i).'' Further, the regulations specify that ``readily 
retrievable'' is defined, in relevant part, as requiring certain 
``records [be] kept by automatic data processing systems or other 
electronic or mechanized recordkeeping systems in such a manner that 
they can be separated out from all other records in a reasonable 
time.'' 21 CFR 1304.029i). However, focusing on the method of storage 
of data misses the problem here.
    The Deputy Administrator disagrees with Judge Tenney's analysis of 
the application of this standard in this case. Judge Tenney wrote:

    [The Investigator] testified that because the reports did not 
contain all the necessary information, then that information was not 
readily retrievable. However, the information for the reports was in 
the computer and was `readily retrievable' once it was understood

[[Page 37089]]

which `fields' of information contained in the computer database 
must be reflected in the reports. Many of Respondent's reports have 
already been changed to reflect missing information and Respondent 
appears willing to make any future adjustments to its reports.

    Such an analysis places the burden upon the DEA to inform the 
Respondent as to which ``fields'' of information to include misses the 
point of the inspection, which is to view the reports used by the 
Respondent during its normal business activities to track the 
processing of controlled substances through its facility to insure that 
the process is effective in preventing diversion of such substances to 
unauthorized recipients. During an inspection, the Respondent is not 
asked to create special reports for DEA's use. Rather, the Respondent 
is to present shipping, receiving, and destruction reports utilized on 
a daily basis by the Respondent to meet its accountability 
responsibility as a registrant. Of course such reports may be 
maintained in an automatic data processing system, but the method of 
maintenance of the report is not the issue. The issue is the content of 
the report and its usefulness in demonstrating the Respondent's 
compliance with DEA requirements in its handling of controlled 
substances during its daily operation. The DEA merely relies upon the 
Respondent's existing recordkeeping system to conduct an accountability 
audit.
    However, here the DEA investigators have consistently been unable 
to use the Respondent's documentation to reconcile the Respondent's 
accountability records with substances found on hand in the 
Respondent's security cage on the date of the DEA audit. As of the 
January 1995 inspection, the Respondent continued to fail to meet this 
obligation, an accountability obligation levied against any DEA 
registrant thus handling controlled substances.
    Thus, the Deputy Administrator finds that this failure, coupled 
with the unauthorized storage of unaccounted for Schedule II substances 
outside a security cage for an extended period of time, create a basis 
for the revocation of the Respondent's registration. The Respondent had 
failed to demonstrate that it had maintained effective controls against 
diversion, and such a failure has created a risk to the public 
interest.
    In mitigation, the Deputy Administrator notes both Ms. Smith's and 
the President's evidence of continuous attempts to meet DEA's 
requirements during the course of the meetings and inspections 
conducted by the DEA. The Deputy Administrator also takes note of the 
timely and responsive manner in which Respondent's officers modified 
the firm's business practices to attempt to bring them into regulatory 
compliance. Their responsive and cooperative attitude indicates a 
desire and a willingness to operate this returns business in compliance 
with statutory and regulatory requirements. The Respondent has 
committed extensive personnel and fiscal resources toward developing a 
system to insure its operation is in compliance with DEA requirements. 
Also, the Respondent has initiated procedures, such as employee 
criminal background checks, to insure that personnel with access to 
controlled substances within its facility are qualified to meet the 
responsibilities of such a position.
    Further, many of the problems identified in the 1992 MOU and the 
1993 MOU have been resolved, such as (1) The Respondent's clearly 
communicating to its customers its inability to accept Schedule II 
substances and patient-prescribed substances, and the procedures 
implemented to return such substances to the customer; (2) fulfilling 
the ARCOs reporting requirements; (3) separately storing controlled 
substances and non-controlled substances; (4) correct the Respondent's 
receiving records to reflect the actual date of receipt of its 
customer's products; (5) adding the requirement that a customer provide 
to the Respondent a copy of its DEA Certificate of Registration and an 
inventory of controlled substances actually shipped to the Respondent; 
(6) providing DEA notice of its selected disposal site; and (7) 
modifying the way in which records for repackaged products are created.
    Procedurally, Judge Tenney recommended that the Deputy 
Administrator take no action with respect to the Respondent's 
registration. After receiving his recommendation, the Government timely 
filed exceptions, pursuant to 21 CFR 1316.66, and the Respondent field 
a brief in support of Judge Tenney's recommendation.
    After reviewing the parties filings, the Deputy Administrator notes 
that a significant issue forming the basis of the Government's 
exception is that Judge Tenney, after reviewing the Respondent's 
evidence of corrective action taken since the January 1995 inspection, 
had found such corrective action persuasive in remedying the violations 
previously identified by the Investigator. Specifically, the Government 
took exception to Judge Tenney's finding that the Respondent had made 
reasonable efforts to comply with DEA regulations, given the fact that 
even as late as the January 1995 inspection, the Investigator had 
continued to find numerous recordkeeping and security violations. The 
Government wrote, ``[a]s recent as the July 1995 hearing, the 
Respondents were still in the process of attempting to bring itself 
into compliance with DEA requirements * * *. In addition, [the 
Investigator] testified to matters that remained uncorrected at the 
firm as of January 1995, and to date, DEA has not been able to conduct 
an accountability audit at the firm because of the firm's poor record-
keeping, (sic) nor has the firm produced an accurate and verifiable 
biennial inventory.'' In a related concern, the Government also took 
exception to Judge Tenney's finding as to the efforts taken by the 
Respondent's personnel to create a controlled substance tracking 
system. The Government wrote that ``there is practically no evidence in 
the record that [the] Respondent's information system has produced 
accurate and verifiable information to DEA.''
    The Deputy Administrator agrees with Judge Tenney's finding that 
the Respondent has made efforts to comply with DEA's regulations, as 
evidenced by the extensive efforts taken to create a computer system 
that would assist in managing the flow of controlled substances through 
the Respondent's facility. However, the Deputy Administrator also 
agrees that the evidence supports the Government's concerns, for DEA 
has been unable to successfully conduct an accountability audit. The 
Deputy Administrator agrees that the Respondent's lack of verifiable 
inventory control places the public at risk from diversion of 
controlled substances.
    The Government also took exception to Judge Tenney's conclusion 
that the public interest was served by continuing the Respondent's 
registration, in light of the Respondent's past history of non-
compliance with DEA requirements. The Deputy Administrator agrees with 
the Government's assertion that ``[a]n agency rationally may conclude 
that past performance is the best predictor of future performance. Alra 
v. Drug Enforcement Administration, 54 F.3d 450 (7th Cir. 1995).'' 
However, here DEA's requirements differ from the average regulatory 
case, for DEA does not have regulations responsive to and governing the 
Respondent's business, since this Respondent does not manufacture, 
distribute, or dispense controlled substances. The terms of the two 
MOU's and the regulations incorporated into those agreements form the 
basis for the DEA's regulatory requirements, and both DEA and the 
Respondent acknowledged the need for

[[Page 37090]]

cooperation in applying those requirements as the Respondent's business 
practices were developed. Although the Deputy Administrator 
acknowledges that the overall regulatory goal of preventing diversion 
of controlled substances outside of the regulated system of 
distribution has applied equally to the Respondent as to any other DEA 
registrant, from the inception of the Respondent's operation, the 
mechanisms of compliance have had to be developed. The Deputy 
Administrator must take these facts into account when reviewing this 
Respondent's past history of compliance.\1\
---------------------------------------------------------------------------

    \1\ The remaining Government exceptions, and the Respondent's 
reply to those exceptions, have been previously addressed in this 
opinion, and they require no further discussion here.
---------------------------------------------------------------------------

    Yet the responsibility remains the Registrant's to conduct its 
business in an accountable manner that does not place the public at 
risk of diversion of controlled substances. Therefore, in the balance, 
the Deputy Administrator concludes that it is in the public interest 
for the Respondent's DEA registration to be revoked. However, the 
Deputy Administrator feels that the evidence of changes made by the 
Respondent in response to the Government's case at the hearing before 
Judge Tenney, may, in operation, finally create an accountability 
system adequate for the Respondent to demonstrate the requisite degree 
of precision in handling controlled substances necessary to continue in 
operation as a disposer. The Deputy Administrator also finds that it is 
in the public interest for the Respondent to be given yet another 
opportunity to demonstrate that the latest alterations to the 
Respondent's business practices will adequately contain the risk to the 
public of diversion from the Respondent's operation.
    Therefore, the Deputy Administrator will stay the revocation and 
impose a one-year probationary period to determine whether the 
Respondent can now fully comply with all DEA recordkeeping, reporting, 
and security requirements. During the one-year probationary period, DEA 
will conduct inspections and audits in compliance with the procedures 
established in 21 U.S.C. 880 and its implementing regulations. It is 
significant that during this period, the Respondent will be taking its 
second biennial inventory, which will afford the Respondent the 
opportunity to demonstrate its ability to conduct a meaningful 
inventory of controlled substances in its possession.
    However, if the DEA's inspections or audits reveal either new or 
repeated violations, the Deputy Administrator will remove the stay and 
the DEA Certificate of Registration will be revoked immediately, and 
all pending applications for renewal will be summarily denied. If, 
however, at the end of the one-year period, the Respondent successfully 
demonstrates its compliance with the DEA's regulatory requirements, 
then the Deputy Administrator will withdraw this order and will permit 
the Respondent to retain its registration, and to renew it, if 
necessary, at that time.
    Accordingly, the Deputy Administrator of the Drug Enforcement 
Administration, pursuant to the authority vested in him by 21 U.S.C. 
823 and 824, and 28 CFR 0.100(b) and 0.104, hereby orders DEA 
Certificate of Registration RR0166113, issued to RX Returns, Inc., be, 
and it hereby is, revoked and any pending applications for renewal are 
denied. It is further ordered that this revocation order will be stayed 
for a period of one year from its effective date. If during the one-
year probationary period, the Respondent is found to have violated any 
DEA reporting, recordkeeping, or security requirements, the previously 
imposed stay will be removed, the Respondent's DEA Certificate of 
Registration will be revoked, and any pending applications for renewal 
will be summarily denied. This final order is effective August 15, 
1996.

    Dated: July 5, 1996.
Stephen H. Greene,
Deputy Administrator.
[FR Doc. 96-18025 Filed 7-15-96; 8:45 am]
BILLING CODE 4410-09-M