[Federal Register Volume 68, Number 197 (Friday, October 10, 2003)]
[Rules and Regulations]
[Pages 58587-58600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25817]


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DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1301

[Docket No. DEA-232F]
RIN 1117-AA70


Controlled Substances Registration and Reregistration Application 
Fees

AGENCY: Drug Enforcement Administration (DEA), Justice.

ACTION: Final rule.

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SUMMARY: This final rule establishes the fee schedule for DEA 
registration and reregistration fees relating to the registration and 
control of the manufacture, distribution and the dispensing of 
controlled substances. DEA is required to adequately recover necessary 
costs associated with the Diversion Control Program (DCP) as mandated 
by the Departments of Commerce, Justice, and State, the Judiciary, and 
Related Agencies Appropriations Act of 1993.

EFFECTIVE DATE: December 1, 2003. The new fee schedule will be in 
effect for all new applications postmarked on or after December 1, 2003 
and for all renewal applications postmarked on or after December 1, 
2003.

FOR FURTHER INFORMATION CONTACT: Patricia M. Good, Chief, Liaison and 
Policy Section, Office of Diversion Control, Drug Enforcement 
Administration, Washington, DC 20537; Telephone (202) 307-7297.

[[Page 58588]]


Supplementary Information: 

I. Introduction and Statutory Authority

    The Drug Enforcement Administration (DEA) published a notice of 
proposed rulemaking in the Federal Register on February 18, 2003 (68 FR 
7728) to adjust the registration and reregistration fees for controlled 
substances handlers. DEA's authority to collect registration fees 
derives from three statutory provisions.
    DEA is authorized by 21 U.S.C. 821 to collect ``reasonable fees 
relating to the registration and control of the manufacture, 
distribution and dispensing of controlled substances and to the 
registration and control of regulated persons and of regulated 
transactions.'' Secondly, 21 U.S.C. 958(f) permits DEA to collect 
``reasonable fees relating to the registration of importers and 
exporters of controlled substances or List I chemicals.''
    Thirdly and importantly, the Departments of Commerce, Justice, and 
State, the Judiciary, and Related Agencies Appropriations Act of 1993 
(Pub. L. 102-395) requires that DEA collect fees to ensure the recovery 
of the full costs of operating the Diversion Control Program (DCP). 
Section 111(b)(3) of the act, codified at 21 U.S.C. 886a(3), requires 
that ``fees charged by the Drug Enforcement Administration under its 
Diversion Control Program shall be set at a level that ensures the 
recovery of the full costs of operating the various aspects of that 
program.'' Section 111(b)(1) of the act also requires that ``there 
shall be deposited as offsetting receipts into that account all fees 
collected by the Drug Enforcement Administration, in excess of 
$15,000,000, for the operation of its Diversion Control Program.''
    Following an adjustment in registration fees in 1993, the American 
Medical Association (AMA) and others filed a complaint in the United 
States District Court for the District of Columbia objecting to the new 
fees. After the district court issued its final order granting the 
government's motion for summary judgment and disposing of all claims, 
the AMA appealed. In the ensuing case, AMA v. Reno, the United States 
Court of Appeals for the District of Columbia Circuit found DEA's 
rulemaking to be inadequate and remanded, without vacating, the rule to 
DEA, requiring the agency to provide an opportunity for meaningful 
notice and comment on the fee-funded components of the Diversion 
Control Program (DCP). In doing so, however, the court also confirmed 
the boundaries of the DCP that DEA can fund by registration fees (AMA 
v. Reno, 57 F.3d 1129, 1135 (D.C. Cir. 1995)). More specifically, the 
court found that the current statutory scheme requires DEA to set 
registration fees to recover the full costs of the DCP, while requiring 
DEA to charge ``reasonable'' fees relating to the registration and 
control of the manufacture, distribution and dispensing of controlled 
substances and the registration and control of regulated persons and of 
regulated transactions.
    DEA responded to the remand requirement through a notice in the 
Federal Register on December 30, 1996 (61 FR 68624), describing the 
fee-funded components and activities of the DCP with an explanation of 
how each satisfies the statutory requirements for fee-funding. A final 
rule was subsequently published on August 9, 2002 (67 FR 51988).
    DEA, therefore, is bound by the above-referenced statutory 
requirements in setting fees that recover the full cost of the 
Diversion Control Program and its activities. DEA has developed its 
rulemaking according to these legislative mandates.

II. Comments Received

    Following publication of the Notice of Proposed Rulemaking on 
February 18, 2003, DEA received 36 comments to the notice, objecting to 
the fee schedule contained in the proposed rule. Twenty-seven comments 
were received from physicians (5 comments) and veterinary (22 
comments); two comments were received from pharmacists, and seven 
comments were received from national or state associations representing 
different registrant groups. Late comments were also sent by another 
national group after the close of the comment period. Its comments were 
already raised by other commenters and, therefore, are addressed 
accordingly in this final rule.
    Most commenters objected to the proposed increase in registration 
and reregistration fees, most noting that the increase was ``too much'' 
despite the ten-year period since fees were last adjusted; one 
commenter wrote that he had no problem with the proposed fee increase 
for practitioners from $70 to $131. One commenter also raised concern 
that the proposed fees were based on estimated budgets for Fiscal Years 
2004-2006 and that, because the fee schedule would extend only to 
Fiscal Year 2006, DEA could raise the fees again at that time. Several 
commenters inaccurately characterized the proposed registration fee as 
either a ``tax'' or as a ``user fee.''
    Four commenters expressed concern about the programmatic and 
operational costs of the DCP that necessitated the proposed increase in 
fees. Commenters specifically addressed why the DCP budget authority 
has doubled since Fiscal Year 1994 and what activities, including what 
new initiatives, would be supported through registration fees.
    Three commenters expressed concern about the potential effect of 
the proposed increase in fees on small businesses, particularly in the 
current economy.
    Three comments were received regarding individual registrations. 
One commenter wrote that the ability of residents and hospital- and 
clinic-based physicians to use their employer's registration number 
instead of being required by DEA to maintain individual registrations 
causes confusion with pharmacies. Another commenter argued that 
veterinarians unfairly support a disproportionate share of DCP costs 
because veterinary clinics as free-standing hospitals must purchase 
separate DEA registrations unlike physicians and other practitioners 
affiliated with human hospitals that may work under the hospital's 
registration under certain circumstances. Comments also noted that a 
fee increase would encourage practices, especially large practices, to 
forego licensure of all practitioners in the practice. Similarly, two 
commenters requested that registration fees be calculated based on the 
volume of controlled substances used, as usage differs by type of 
registrant.
    Four commenters expressed concern that Internet pharmaceutical 
companies selling veterinary products at discounted prices are 
undermining veterinarian revenue. Other areas addressed by commenters 
included eliminating the mandatory annual $15 million transfer to the 
U.S. Treasury; finding alternative sources for funding the Diversion 
Control Program such as fines to violators of controlled substances 
laws, fines to insurance companies and health care providers that use 
DEA registrations for identification purposes, ``taxes'' on Internet 
pharmacies, fees to large drug companies that ``have billions of 
dollars,'' and Congressional appropriations; and the provision of 
additional time beyond the 30 days following publication of the final 
rule for the new fees to go into effect.
    Each of the points raised by commenters is addressed below.

III. Objections to Fee Increase

    All but one of the commenters objected to the increase in 
registration and reregistration fees, many characterizing them as 
``arbitrary'' and

[[Page 58589]]

``exorbitant.'' Multiple commenters noted that physicians and other 
practitioners have been experiencing declining reimbursements and 
increasing operating costs, malpractice insurance costs, and costs of 
complying with other Federal and State requirements combined with high 
medical school debt. Several commenters suggested that the fee be 
raised 1.6 percent consistent with the 2003 increase in Medicare 
reimbursements; others suggested a 3-4 percent annual increase or a 
flat $5-10 increase. One commenter questioned how the fee increase 
compares with the rate of inflation. One commenter alleged that DEA was 
``arbitrarily'' raising fees, and several others commented that DEA had 
not provided adequate justification for the fee increase.
    As described above, DEA's authority to charge registration fees to 
support the Diversion Control Program derives from three statutory 
provisions. DEA is authorized by 21 U.S.C. 821 to collect reasonable 
fees relating to the registration and control of the manufacture, 
distribution and dispensing of controlled substances. Secondly, 21 
U.S.C. 958(f) permits DEA to collect reasonable fees relating to the 
registration of importers and exporters of controlled substances.
    Thirdly, the 1993 Departments of Commerce, Justice, and State, the 
Judiciary, and Related Agencies Appropriations Act established the Drug 
Diversion Control Fee Account (DDCFA) and specifically mandated that 
fees ``shall be set at a level that ensures the recovery of the full 
costs of operating the various aspects of that program.'' 21 U.S.C. 
886a(3). Congress, in using the mandatory term ``shall'' as opposed to 
the discretionary ``may,'' unambiguously required DEA to increase its 
then-existing registration fees resulting in registrants fully funding 
DCP expenses. DEA, therefore, lacks discretion in this matter and must 
fund its DCP totally from registration fees (that is, not from fines, 
Congressional appropriations or other potential sources). Assuming for 
the sake of argument that there is some doubt as to whether Congress 
intended DEA to entirely fund the DCP from registration fees due to its 
use of the phrase ``various aspects'' of the DCP as opposed to 
something like ``all aspects,'' the House Conference Report notes that 
the act's language ``requires the Drug Enforcement Administration to 
set fees to recover the full cost of their Diversion Control Program.'' 
H.R. Conf. Rep. No. 918, 102nd Cong., 2d Sess. 44 (1992).
    Congress also mandated fulfillment of the requirements of the 
Appropriations Act ``(n)otwithstanding (a)ny (o)ther (p)rovision of 
(l)aw,'' thus making its provisions supersede all other provisions of 
law that would otherwise prevent or impede DEA's recovery of the full 
costs of the DCP through registration fees. H.R. 5678, 102nd Cong., 2d 
Sess. 111 (1992).
    Accordingly, while DEA recognizes the economic pressures facing 
practitioners such as declining Medicaid reimbursements and increasing 
operating, equipment, and insurance costs, the current statutory scheme 
requires DEA to set registration fees to recover the full costs of the 
DCP, while limiting DEA to charge ``reasonable'' fees relating to the 
registration and control of the manufacture, distribution and 
dispensing of controlled substances. DEA does not have the discretion 
to partially fund the DCP or to find alternative sources of funding for 
the program. Rather it is mandated by law to fund the DCP fully through 
registration fees.
    DEA has not adjusted the registration and reregistration fees since 
March 22, 1993 when it published a final rule in the Federal Register, 
establishing registration fees for controlled substances registrants 
(58 FR 15272). (This fee schedule then went into effect for all 
registration applications postmarked on April 21, 1993 or later and all 
renewal applications with an expiration date of May 21, 1993 or later). 
Following publication of the final rule, the American Medical 
Association (AMA) and others filed a complaint in the United States 
District Court for the District of Columbia objecting to the new fees. 
The district court issued its final order granting the government's 
motion for summary judgment and disposing of all claims. Following an 
appeal by the AMA, the United States Court of Appeals for the District 
of Columbia Circuit found DEA's rulemaking to be inadequate and 
remanded, without vacating, the rule to DEA, requiring the agency to 
provide an opportunity for meaningful notice and comment on the fee-
funded components of the Diversion Control Program. DEA responded to 
the remand requirement through a final rule published in the Federal 
Register on December 30, 1996 (61 FR 68624). DEA then published its 
Final Rule on the Drug Diversion Control Fee Account and Diversion 
Control Program funding, responding to comments and clarifying the 
activities to be funded as part of the DCP, on August 9, 2002 through 
publication in the Federal Register (67 FR 51988).
    Over the period of ten years the costs of operating the Diversion 
Control Program (DCP) have increased, necessitating a review of fees 
and an increase in those fees that support the program as mandated by 
statute. Such increase in operating costs, detailed below, include a 
greater number of diversion investigators, increased investigation 
costs, additional diversion control efforts such as controlling 
diversion of licit controlled substances on the Internet, inflation, 
and increases in salaries and compensation for employees. In setting 
the fees, DEA is mandated to recover the ``full costs'' (emphasis 
added) of the DCP and does not have the discretion to adjust the fees 
according to Medicare reimbursements or inflation as suggested by some 
commenters. DEA is also mandated to charge ``reasonable'' fees. Because 
the fees do not represent a significant financial burden on registrants 
(see discussion below regarding the impact on small businesses), DEA 
has determined that the fees contained in this final rule are 
reasonable. The individual effect on registrants is minimal, 
representing from 0.21% to as little as 0.01% of average annual sales 
(or income) for those registrants qualifying as small businesses. For 
registrants that are large businesses with higher sales, the impact of 
the fee is even less.

IV. Fees as a Tax or User Fee

    Several commenters inaccurately characterized the registration fee 
as a tax or user fee. One commenter expressed that the DCP is a program 
from which the general public benefits and from which physicians do not 
derive a benefit despite paying a fee. User fees are charges that may 
be assessed only when a fee-funded service provides special benefits to 
an identifiable recipient beyond those that accrue to the general 
public, pursuant to the Independent Offices Appropriations Act (IOAA) 
(OMB Circular A-25, July 15, 1993). Examples of such services include 
activities that: Enable the beneficiary to obtain more immediate or 
substantial gains or values than those that accrue to the general 
public (e.g., receiving a patent, insurance, or guarantee provision, or 
a license to carry on a specific activity or business); provide 
business stability or contributes to public confidence in the business 
activity of the beneficiary (e.g., insuring deposits in commercial 
banks); or that are performed at the request of or for the convenience 
of the recipient, and are beyond the services regularly received by 
other members of the same industry or group or by the general public 
(e.g., receiving a passport, visa, airman's

[[Page 58590]]

certificate, or a Custom's inspection after regular duty hours).
    However, the IOAA applies ``only when there is no independent 
statutory source for the charging of a fee or where a fee statute fails 
to define fee-setting criteria'' AMA v. Reno, 857 F. Supp. at 84 
(D.D.C. 1994). Accordingly, the controlled substances registration fees 
that are the subject of this rulemaking do not constitute user fees 
because other statutory authority (as described above) set specific 
criteria and funding guidelines. Moreover, in the 1993 Appropriations 
Act, Congress mandated fulfillment of the requirements of the Act 
``(n)otwithstanding (a)ny (o)ther (p)rovision of (l)aw,'' thus making 
its provisions supersede all other provisions of law that would 
otherwise prevent or impede DEA's recovery of the full costs of the DCP 
through registration fees. H.R. 5678, 102nd Cong., 2d Sess. 111 (1992).
    However, with that said, registrants who pay the fees do receive 
special benefits not conveyed on the general public. Specifically by 
registering with the DEA, registrants are able to handle controlled 
substances, an immediate ``gain or value'' not provided to the general 
public. Because of the closed system of drug distribution and the 
diversion control activities of the DCP, there are some tangential 
public benefits as well, much in the same way that the system of 
driver's licenses (by which individual drivers receive a specific 
benefit not conveyed on the public at large) increases the general 
safety on public roads thus also conveying an ancillary public benefit.
    Because Congress specified in the 1993 Appropriations Act (with 
collection and spending criteria established by prior law (21 U.S.C. 
821 and 958(f)), that ``(f)ees charged by the Drug Enforcement 
Administration under its Diversion Control Program shall be set at a 
level that ensures the recovery of the full costs of operating the 
various aspects of that program'' and funds from the Drug Diversion 
Control Fee Account (DDCFA) to fund the DCP will be raised ``in 
accordance with estimates made in the budget request of the Attorney 
General'' (21 U.S.C. 886a(3) and (4)), the registration fees charged by 
DEA pursuant to this act are not user fees subject to the IOAA because 
the Appropriations Act and related statutory authorities constitute 
independent statutory sources for charging the fee and define fee-
setting criteria, i.e., to cover the full costs of the DCP. AMA v. 
Reno, 857 F. Supp. 80 (D.D.C. 1994).
    Thus, the appropriate test for fee-funding DCP activities is not 
whether they convey a special benefit to registrants but whether the 
fees are ``reasonable'' and ``relat(e) to the registration and control 
of the manufacture, distribution, and dispensing of controlled 
substances'' or relate to the registration of importers and exporters, 
and are set ``at a level that ensures the recovery of the full costs of 
operating the various aspects of (the Diversion Control) program.'' 21 
U.S.C. 821, 958(f) and 886a(3). DEA has concluded that the fees meet 
both of these criteria.

V. Diversion Control Programmatic and Operational Costs

    Several commenters wrote that DEA had not provided adequate 
justification for the fee raise with some requesting detailed 
descriptions of the costs and expenditures made by the DCP. Commenters 
questioned the programmatic and operational costs of the DCP and raised 
concern about the rising costs of DCP activities over the past ten 
years that necessitated the fee increase.
    This section describes fee-fundable activities that constitute the 
DCP, the budget justification for the fee increase, and how the fees 
were calculated and addresses related comments regarding the operation 
of the DCP.

A. Fee-Fundable Activities

    DEA's mission with respect to licit controlled pharmaceuticals is 
to prevent, detect and eliminate the diversion of controlled 
pharmaceuticals from legitimate channels to illegal use, while at the 
same time ensuring their availability for legitimate medical and 
scientific purposes. To facilitate these goals, Congress, through the 
Controlled Substances Act, established a closed system of controlled 
substance distribution encompassing manufacturers, distributors, 
pharmacies and practitioners; that is, within this closed system a 
controlled substance can be traced from the time it is manufactured to 
the time it is dispensed to the ultimate user. This system has proven 
effective in reducing the diversion of these substances from legitimate 
channels to the illicit market. Components of this closed system 
include scheduling of all controlled substances, registration of all 
controlled substance handlers, recordkeeping for accountability, 
security, and manufacturing quotas, all under the oversight of the DCP. 
(The DCP also possesses similar chemical control responsibilities 
pursuant to the Chemical Diversion and Trafficking Act (CDTA) and 
subsequent legislation. The chemical diversion control program and/or 
its registration and reregistration fees are outside the domain of this 
rulemaking and therefore are not affected by this rulemaking.)
    The plain language of the 1993 Appropriations Act requires DEA to 
set and collect registration fees to cover the full costs of operating 
the DCP. In its 1993 final rule publication setting new registration 
fees, DEA examined all activities that relate to the registration and 
control of the manufacture, distribution and dispensing of controlled 
substances and to the registration (and control) of importers and 
exporters. DEA determined that ``activities contained in the 
[diversion] program which give rise to the fees consist of diversion 
investigators, analysts, technicians, and clerical personnel salaries 
and expenses; and travel, rent, utilities, supplies, equipment and 
services associated with these positions for the registration and 
control of the manufacture, distribution and dispensing of controlled 
substances'' (58 FR 15273). DEA determined that it would not fee-fund 
costs associated with chemical control efforts (see below), clandestine 
laboratory efforts, overseas staff (specifically diversion 
investigators assigned to foreign posts), DEA's Office of Chief Counsel 
or executive direction (58 FR 15273). DEA concluded that these 
activities were excluded from the Attorney General's budget delineation 
for the category of ``Diversion Control'' and thus not included in the 
determination of the fees. Id.
    At the time this initial rule was published on March 22, 1993, 21 
U.S.C. 821 did not extend to chemical control activities (``regulated 
transactions''). Accordingly, there were no registration or fee 
requirements for handlers of List I chemicals, and chemical control 
activities were not included among those to be supported by controlled 
substances fees. Congress amended 21 U.S.C. 821 on December 17, 1993 to 
require reasonable fees relating to ``the registration and control of 
regulated persons and of regulated transactions.'' Domestic Chemical 
Diversion Control Act of 1993, 3(a), Pub. L. 103-200, 107 Stat. 2333. 
Despite this amendment, to date DEA's chemical control activities have 
continued to be supported by appropriated funds and not by the 
controlled substances fees through the Drug Diversion Control Fee 
Account (DDCFA). Again, DEA's chemical control activities are not the 
subject of this rulemaking.
    In its December 1996 Federal Register notice, DEA further excluded 
from fee-funding those activities that incidentally support the DCP but 
are funded

[[Page 58591]]

elsewhere in the DEA Salaries Budget (and thus not fee-funded). 
Specific examples listed in the notice include ``support provided by 
the Attorneys in DEA's office of Chief Counsel Diversion Regulatory 
Section; certain laboratory service support; DEA Automated Data 
Processing Systems support (except the Automation of Reports and 
Consolidated Orders System (ARCOS) and the Controlled Substances Act 
(CSA) database); Office of Training staff; DEA Management and 
Administrative Support; Office of Congressional and Public Affairs; 
Intelligence Support and Diversion Investigators assigned overseas'' 
(61 FR 68631).
    In its August 2002 Final Rule published in the Federal Register, 
DEA reviewed the history and statutory authority of fee-fundable 
activities in detail and further described what activities would be 
fee-funded via the DDCFA. These activities include: Scheduling, 
registration, investigation, inspection, data collection and analysis, 
training, establishing production quotas, cooperative efforts with 
state, local and other federal agencies, cooperative efforts with the 
regulated industry, international activities relating to the 
registration and control of the manufacture, distribution and 
dispensing of controlled substances, and attendant management, 
personnel, administrative and clerical oversight for the DCP because 
they too relate to the fee-funding criteria of 21 U.S.C. 821 and 
958(f). Fee-fundable activities also include travel, rent, utilities, 
supplies, equipment and services associated with the above-listed 
activities (67 FR 51988).
    Certain international activities also are supported through fee 
funds because they relate to the registration and control of the lawful 
manufacture, distribution and dispensing of controlled substances. 
Controlled substances lawfully imported or exported relate to Section 
821 requirements because imported substances are subsequently 
distributed to other DEA registrants, and exported substances are 
initially manufactured and/or distributed domestically prior to export. 
As explained in the December 30, 1996 Federal Register notice, the 
Controlled Substances Act's closed system of controls over 
manufacturing, distribution and dispensing was not established and is 
not administered within the isolation of our domestic borders. Rather, 
the controls are part of a global system of national and international 
laws designed to establish an interrelated, worldwide structure of 
control over the manufacture, distribution, dispensing, import and 
export of controlled substances, so that controls or lack of controls 
in one country do not undermine controls in another. Congress found and 
declared that illegal importation, along with illegal manufacture, 
distribution, possession and improper use of controlled substances, has 
a detrimental effect on the health and welfare of the American people, 
recognizing that ``(a) major portion of the traffic in controlled 
substances flows through interstate and foreign commerce.'' 21 U.S.C. 
801(2) and (3).
    The international drug control treaties to which the United States 
is a signatory require that each party establish a program of controls 
relating to the registration and control of the manufacture, 
distribution, dispensing, import and export of controlled substances. 
The specific language of the Controlled Substances Act and its 
implementing regulations recognize the obligations of the United States 
under the international conventions. See 21 U.S.C. 801, 801a, 
811(d)(1), 823(a) and 958(a), and 21 CFR 1307.02.
    The Controlled Substances Act expressly recognized that the United 
States is a party to the Single Convention on Narcotic Drugs of 1961 
and other conventions ``designed to establish effective control over 
international and domestic traffic in controlled substances.'' 21 
U.S.C. 801(7). Likewise, Congress recognized that the abuse of 
psychotropic substances has become ``a phenomenon common to many 
countries'' that ``is not confined to national borders,'' making it 
``essential that the United States cooperate with other nations in 
establishing effective controls over international traffic in such 
substances.'' (21 U.S.C. 801a(1)). Congress further recognized that the 
United States joined with other countries in executing the Convention 
on Psychotropic Substances, ``which is designed to establish suitable 
controls over the manufacture, distribution, transfer, and use of 
certain psychotropic substances.'' (21 U.S.C. 801a(2)). Congress 
acknowledged that before the Senate could ratify the convention, the 
Controlled Substances Act required amending to bring it into compliance 
with the requirements of the convention. Congress thus recognized that 
the conventions are an integral part of the United States' programs 
regarding the registration and control of the manufacture, 
distribution, and dispensing of controlled substances. By implementing 
and ratifying the international treaties, Congress recognized that a 
strong domestic program relating to the registration and control of the 
manufacture, distribution, dispensing, import or export of controlled 
substances depends on establishing and maintaining strong controls 
within other individual nations.
    Thus, DEA is obligated to conduct, as part of its Diversion Control 
Program, certain international activities relating to the lawful 
manufacture, distribution, dispensing, import and export of controlled 
substances. DEA fee-funds most international diversion control 
activities that it had historically conducted since 1971, considering 
each related to 21 U.S.C. 821 and 958(f) criteria. Among those 
international activities that are excluded from DDCFA funding are 
international chemical control activities.
    Additional detail on specific international activities supported 
through fee-funds as part of the DCP is contained in the August 9, 2002 
Federal Register notice (67 FR 51988).
    While diversion control and registration activities are conducted 
by DEA's Office of Diversion Control, other DEA elements undertake 
activities in support of the DCP in addition to supporting nonfee-
fundable activities. As such, these other elements expend fee-funds to 
support those fee-fundable DCP activities. For example, the Office of 
Administration provides office space, makes appropriate office 
renovations and supplies the security guard force to the diversion 
groups. The Office of Administration pays rent and other expenses with 
fee funds. The Office of Resource Management expends fee funds for 
payroll and employment benefits for the DCP workforce. The Office of 
Training trains the DCP workforce and spends fee funds on training in 
support of fee-fundable activities, for example seminars for industry 
on controlled substances (but not on staff; see below).
    Not included among fee-fundable diversion control activities are 
several elements of DEA operations that, though not part of the DCP, 
incidentally support the activities of the DCP. To date these 
activities have been funded through Congressional appropriations rather 
than through fee funds. Examples of such elements include two sections 
within the Office of Chief Counsel that (a) litigate administrative 
actions related to DEA registrants and (b) provide legal support on 
regulatory policy matters; staff salaries and related staff expenses 
within a section of the Office of Training that is specifically 
dedicated to the DCP (note, certain eligible training activities are 
fee-funded as noted above); a portion of the Office of Forensic 
Sciences Special Testing Laboratory that supports authentic

[[Page 58592]]

sample analyses for licit drugs; and a portion of the budget for DEA's 
agency-wide computer network, ``Firebird'', related to the work of the 
DCP. As was discussed more fully in previous rulemakings regarding the 
use of controlled substances fee funds, while these elements 
incidentally support diversion control efforts, because their overall 
function is not primarily devoted to diversion control, they have been 
included elsewhere in the DEA budget and not as part of fee-fundable 
activities. In the absence of specific guidance in the 1993 
Appropriations Act as to which activities were encompassed within the 
DCP and thus fee-fundable, DEA has followed the plain language of the 
act and used the budget categories that had historically been included 
in the DCP budget request of the Attorney General. As described in 
DEA's 1996 Federal Register notice, for the purposes of budget 
formulation and appropriation, DEA historically has identified only 
those resources (with their overhead costs) that were specifically 
devoted to diversion control efforts as part of the DCP in its annual 
budget submission to Congress. Other resources which support a broad 
range of DEA activities, including diversion control, therefore have 
been included in the budget formulation and appropriation process and 
not funded through fee funds (61 FR 68631). At this time these 
activities will continue to be funded through appropriated funds as DEA 
considers how to better comply with the applicable laws in the future.

B. Budget Justification for Fee Increase

    Several commenters questioned the justification for the budget 
increase necessitating the raise in registration and reregistration 
fees. Since the fees were last raised in 1993, costs of operating the 
Diversion Control Program (DCP) have increased. As described above, 
fee-fundable activities of the DCP include: scheduling, registration, 
investigation, inspection, data collection and analysis, training, 
establishing production quotas, cooperative efforts with state, local 
and other federal agencies, cooperative efforts with the regulated 
industry, certain international activities relating to the registration 
and control of the manufacture, distribution and dispensing of 
controlled substances, and attendant management, personnel, 
administrative and clerical oversight for the DCP. Fee-fundable 
activities also include travel, rent, utilities, supplies, equipment 
and services associated with the above-listed activities.
    The costs of the DCP have increased due to both the rising costs of 
``doing business'' over the past ten years as well as the 
implementation of a number of new initiatives and programs. One 
commenter raised concern that the increase in fees seemed to cover the 
increased costs of operating the DCP with less emphasis on new programs 
and activities. As summarized below, the increased costs of operating 
the DCP to date as well as the anticipated costs through Fiscal Year 
2006 have included/include a number of new initiatives including: the 
creation of Tactical Diversion Squads in Fiscal Year 1997, responding 
to OxyContin[reg] diversion, responding to Internet-based diversion, 
development of a system to permit electronic transmission of controlled 
substances prescriptions, development of controlled substances 
electronic order forms, upgrades to the Automation of Reports and 
Consolidated Orders System (ARCOS), significant improvements to 
registration customer/forms service, and increases in the number of 
diversion investigators.
    In Fiscal Year 1994 the Budget Authority for the DCP was $57.1 
million. The Budget Authority for Fiscal Year 2004, based on the 
President's Budget, is $ 118.6 million. The growth in the DCP has been 
driven by a number of factors some of which have been reflected in the 
DEA budget submissions such as the creation of Tactical Diversion 
Squads in Fiscal Year 1997. Other areas of DCP expansion include the 
costs of responding to the diversion of OxyContin[reg] which involved 
opening 247 cases between October 1999 and March 2002, including 159 
cases in Fiscal Year 2001 alone--a 270 percent increase from Fiscal 
Year 2000. These cases, for example, have led to 328 arrests.
    DEA also has expended increased time and resources in responding to 
the diversion of licit controlled substances over the Internet, a 
concern of several commenters. DEA has opened a number of cases leading 
to arrests and convictions for illegal diversion over the Internet. In 
total the number of diversion arrests more than doubled in the five 
year period of Fiscal Year 1995 (444 arrests) to Fiscal Year 2000 (941 
arrests). In Fiscal Year 2001 DEA made 871 diversion arrests. In Fiscal 
Year 2002 DEA made 714 arrests, and in the first six months of Fiscal 
Year 2003, DEA made 364 arrests.
    The additional investigative and programmatic responsibilities to 
support investigations have required additional diversion 
investigators, headquarters staff and increased financial resources to 
support these staff and their efforts to prevent the diversion of licit 
controlled substances. Over the past ten years the costs of supporting 
personnel and the costs of simply ``doing business'' have increased as 
a result of inflation and general rises in costs. These increases 
affect staff salaries, benefits, as well as the cost of program-related 
travel, rent, utilities, supplies, equipment and services associated 
with diversion control activities. The increasing costs of personnel, 
activities and general operations-- including new initiatives--are 
shown in the following table that outlines the budget authority for 
each year from Fiscal Year 1994 to Fiscal Year 2006 (estimated). Note 
these figures do not include the required $15 million transfer to the 
U.S. Treasury.

------------------------------------------------------------------------
                                                                Budget
                        Fiscal year                           authority
                                                              (millions)
------------------------------------------------------------------------
FY94.......................................................        $57.1
FY95.......................................................         58.4
FY96.......................................................         62.2
FY97.......................................................         67.8
FY98.......................................................         73.2
FY99.......................................................         76.7
FY00.......................................................         80.3
FY01.......................................................         83.5
FY02.......................................................         86.2
FY03.......................................................           89
FY04.......................................................        118.6
FY05 (est.)................................................        139.4
FY06 (est.)................................................          147
------------------------------------------------------------------------

C. Use of Estimated Budget Authorities

    For Fiscal Years 2005 and 2006 the above budget authority estimates 
were derived using the President's Budget for Fiscal Year 2004. One 
commenter expressed concern that DEA was using estimated budget figures 
in its calculations for the Fiscal Year 2004-2006 period. Use of 
estimated budgets for future years is a common practice in budgeting to 
forecast future expenditures and plan future budgets. Because the 
President's Budget Request for the upcoming fiscal year is typically 
submitted to Congress in the spring of the prior year with approval 
following that, if DEA were to wait and use ``actual'', 
Congressionally-enacted budgets on which to base the fee schedule as 
suggested by the commenter, significant delays would result in 
calculating the fees, resulting in potential shortfalls to the fee 
account which, by statute, must support all activities of the DCP. 
Importantly too, adjusting the registration and especially the 
reregistration fees each year would cause significant confusion among 
registrants as to the correct amount to pay, particularly as the 
adjustment often would be effective immediately in order to comply with 
the statute that fees support the ``full costs'' of the DCP. The

[[Page 58593]]

process also would result in increased fee calculation, fee collection, 
and related operating costs for the DCP which would translate to higher 
registration fees.

D. Calculation of Current Fee

    The President's Fiscal Year 2004 budget was calculated using the 
Fiscal Year 2003 budget as a base and adjusting for inflation, salary 
increases and programmatic increases or enhancements. The Fiscal Year 
2004 budget of $118,561,000 for the DCP was submitted by the President 
to Congress on February 3, 2003. The Fiscal Year 2004 budget authority 
of $118,561,000 (that does not include the $15 million transfer to the 
U.S. Treasury) accounts for increases in program costs due to 
inflation, increases in federal staff salaries, and additional funds to 
undertake a number of new initiatives to prevent, detect and eliminate 
the diversion of controlled substances while ensuring an adequate 
supply for legitimate medical and scientific purposes. Additional funds 
would support diversion investigation (93 positions), OxyContin[reg] 
diversion control, and implementation of a system to detect Internet 
sites that may divert controlled substances and investigation of those 
sites, as warranted. Because the registration fees have not been raised 
since 1993, in recent years the DCP has not been operating with the 
ideal staffing level of diversion investigators due to budget 
constraints. The additional funds for OxyContin[reg] and improved 
Internet diversion control will permit DEA to conduct additional and 
more complex investigations into the diversion of pharmaceutical 
controlled substances. Additional funds also would support forty 
positions and the development of systems to permit the electronic 
transmission of controlled substances orders and controlled substances 
prescriptions. These electronic alternatives will provide a similar or 
higher degree of security/integrity than current paper-based systems 
and will help DEA to meet its legal mandates under the Government 
Paperwork Elimination Act. Several commenters highly praised the 
electronic systems and the increased efficiencies afforded to industry. 
By increasing reliance on technological resources, the electronic 
systems also will help to control DCP costs in the future; two 
commenters raised the issue of streamlining DCP operations and 
controlling costs through greater reliance on technological resources. 
The total cost of program enhancements for Fiscal Year 2004 is 
$27,062,000. Including the mandatory transfer to Treasury of $15 
million, the total amount required to be recovered for Fiscal Year 2004 
is $133,561,000.
    To calculate the anticipated President's Budget Request for Fiscal 
Year 2005, DEA used a baseline of the Fiscal Year 2004 President's 
Budget of $118,561,000 (described above) and adjusted the baseline 
figure for increases in program costs due to inflation (including such 
items as postage rate increases, increases in cost of employee health 
benefits, increases in GSA rent, etc.), and costs of federal staff pay 
increases. The anticipated President's Budget Request for Fiscal Year 
2005 is $139,364,000. This figure, revised since the Notice of Proposed 
Rulemaking in February 2003 because of new guidance on inflationary 
figures and updated capital asset planning and budgetary information, 
includes costs to support systems to permit the electronic transmission 
of controlled substances prescriptions and electronic orders of 
Schedule I and II controlled substances (systems highly desired and 
praised by industry, including commenters to the proposed rule), the 
support and operation of DEA's Internet investigations, a major upgrade 
to the Automation of Reports and Consolidated Orders System (ARCOS), 
significant improvements to registration customer/forms service, and 39 
additional positions related to these activities. Other funds accounted 
for include liaison, policy, regulatory, and analytical activities of 
the Diversion Control Program. Including the mandatory transfer to 
Treasury of $15 million, the total amount required to be recovered for 
Fiscal Year 2005 is $154,364,000.
    The anticipated President's Budget Request for Fiscal Year 2006 of 
$147,028,000 was calculated using the same method. This figure also has 
been revised since the proposed rule based on updated budget figures 
and reflecting changes in inflationary growth guidance from the 
Department of Justice. DEA used the anticipated budget request for 
Fiscal Year 2005 and adjusted that figure for inflationary growth and 
increases in federal staff salaries, rent and other overhead costs. 
Including the mandatory transfer to Treasury of $15 million, the total 
amount anticipated to be required to be recovered for Fiscal Year 2006 
is $162,028,000.
    In calculating inflationary growth, DEA used inflation figures of 
1.5 percent for Fiscal Year 2004, 1.5 percent for Fiscal Year 2005 and 
1.6 percent for Fiscal Year 2006 and salary increase assumptions of 4.1 
percent for Fiscal Year 2004 and 3.4 percent for both Fiscal Year 2005 
and Fiscal Year 2006, based on the Fiscal Year 2005 Department of 
Justice Modular Cost Standards and the President's Economic 
Assumptions, respectively.
    To calculate the fee schedule for Fiscal Year 2004-2006, DEA used 
the total amount necessary to collect for the Fiscal Year 2004-2006 
period of $449,953,000 and, based on specific statistical calculations, 
then calculated the fee for each registrant category. To comply with 
the law that DEA recover the full costs of the DCP, DEA then developed 
the specific fee levels for each registrant category.
    To calculate the fee for each registrant category, DEA first 
estimated the number of paying registrants for the Fiscal Year 2004-
2006 period and then used this figure combined with the full amount 
required to be collected for this period to set the new fee rate. To 
calculate the number of paying registrants, DEA used logarithmic 
regression analysis to project the yearly registrant figures based on 
historical registrant data for the period of Fiscal Year 1994 through 
Fiscal Year 2001.
    DEA then estimated the number of registrants for each registrant 
category since different registrant categories pay different fees. 
Because there were insufficient data for some activities to perform 
regression analysis, DEA used the percentage for each category using 
data from the corresponding cycle years in the past.
    Finally, based on the analyses conducted, DEA developed the fees 
for each registrant category consistent with its current fee structure. 
In doing so, DEA opted to set the fee level for a three-year period 
(Fiscal Years 2004-2006) to avoid the heavy burden on registrants and 
the additional administrative expenses to DEA that resetting the fee 
each year would impose. Accordingly, the fee schedule (see below) 
developed reflects the total amount necessary to be collected for the 
full three-year period (Fiscal Years 2004-2006) divided by projected 
registrants and accounting for projected registrant growth by category 
for each fiscal year. Because different categories of registrants pay 
different amounts, DEA weighted the number of registrants in each 
category to ensure the appropriate reflection in the fee schedule. 
Because the registrant fees reflect the total amount necessary to be 
collected for the Fiscal Year 2004-2006 period, there is the 
possibility that DEA may accumulate additional funds beyond those 
necessary for actual program operations in the initial year (Fiscal 
Year 2004), but in the final year of the period (Fiscal Year 2006) fee 
collections are anticipated to fall short

[[Page 58594]]

of the amount necessary to cover expenditures in that year, so DEA will 
then draw down the previously collected surplus. The alternatives to 
this approach would be to reset the fee each year or to set a different 
fee for each fiscal year; both of these options would cause unnecessary 
confusion and would impose greater administrative burdens on DEA and 
registrants.
    Because of the updated and slightly reduced budget figures for 
Fiscal Year 2005 and Fiscal Year 2006, it was necessary for DEA to 
recalculate the fee levels for each category of registrant. As a 
result, the resulting fee schedule reflects minor changes to the fee 
levels as indicated below. For most registrants, this change represents 
a reduction in fee from that included in the Notice of Proposed 
Rulemaking.

------------------------------------------------------------------------
                      Registrant class                       Annual cost
------------------------------------------------------------------------
Manufacturers..............................................       $1,625
Distributors, Importers/Exporters..........................          813
Dispensers/Practitioners**.................................          130
Researchers, Narcotic Treatment Programs...................          130
------------------------------------------------------------------------
** The three-year registration and reregistration fee for dispensers
  (including practitioners, hospitals/clinics, and retail pharmacies)
  and teaching institutions is $390.

    This rulemaking supplants the fee structure proposed in the Notice 
of Proposed Rulemaking published in the Federal Register on February 
18, 2003.

E. Other DCP Operational Issues

    Several commenters questioned the efficiency of DCP operations as 
related to the rising cost of operating the program, with some raising 
the issue of streamlining DCP operations through enhanced use of 
technology, computer upgrades, and improved business practices to 
negate the need for a fee increase. The mission of the DCP is to 
prevent the diversion of licit controlled substances which is done in 
the most efficient and streamlined manner possible. This mission 
requires the outlay of funds to support diversion investigations and 
monitoring of the closed system that was created by the Controlled 
Substances Act to ensure that registrants maintain controls over their 
activities with controlled substances to prevent and detect their 
diversion.
    DEA works diligently to achieve administrative efficiencies in all 
of its programs, including the Diversion Control Program. Through a 
scheduled, periodic review process, virtually all aspects of the DCP 
are inspected to detect any waste, fraud or abuse. All expenditures 
charged to the DDCFA also are reviewed and approved by an independent 
unit charged with this task. Moreover, each of DEA's annual budget 
requests to Congress, which contains all components of each DEA 
program, including the DCP, is available for public review. Each budget 
request is examined and approved by both the Department of Justice and 
the Office of Management and Budget. DEA will continue to review 
expenditures through Fiscal Year 2006 and will adjust the fee schedule 
as necessary again at that time as a result of budget reviews. In 
February 2003 DEA also established a separate unit, the Diversion Fee 
Account Validation Unit, to review, approve, and audit fee-funded 
expenditures.
    DEA has undertaken several initiatives to streamline aspects of the 
DCP both for the DEA and for registrants. For example, DEA is currently 
developing a system to permit the electronic transmission of controlled 
substances prescriptions which will significantly increase the 
efficiency by which prescriptions are transmitted from prescriber to 
pharmacy. This system, however, will not reduce the review requirements 
of DEA employees that monitor the prescription process for controlled 
substances. DEA also is developing a system to permit the electronic 
transmission of controlled substances orders which, again, will 
increase efficiencies for industry. DEA is also pursuing upgrades to 
the Automation of Reports and Consolidated Orders System (ARCOS) and 
other technological improvements to its information management systems 
to increase internal efficiencies. In general, consistent with the 
performance objectives and goals outlined in its Strategic Plan, DEA is 
constantly monitoring its operations for areas that can be improved 
through better use of technology and streamlining of business 
practices.
    One commenter also questioned the exclusion of specific goals and 
performance standards in the notice of proposed rulemaking. Specific 
performance goals are included in DEA's Strategic Plan and are 
therefore not duplicated in rulemaking notices. Moreover, in terms of 
performance measures, as mandated by the Government Performance and 
Results Act (GPRA) and the President's Management Agenda, DEA, like all 
other agencies and components, is required to provide a budget summary 
that incorporates performance information on a quarterly basis. That 
is, DEA already integrates budget and performance in order to evaluate 
the effectiveness of programs relative to long-term, measurable outcome 
goals.
    More specifically, in response to GPRA and the President's 
Management Agenda, the DCP has restructured its budgetary reporting on 
the Drug Diversion Control Fee Account (DDCFA) to include performance 
measures that are consistent with DEA's Strategic Plan and reflect the 
effectiveness of programmatic activities funded by registrant fees. 
Among the objectives included in the DEA Strategic Plan is continued 
support to the registrant population through improved technology, 
including E-commerce and customer support, while maintaining 
cooperation, support, and assistance from the regulated industry. These 
efforts, funded through registration fees, will provide immediate 
benefits to the registrant population such as streamlined processing 
and improved access to information. They also will reduce the paperwork 
burden on small businesses; reduce forged or stolen prescriptions; 
improve authenticity verification of the prescribing or ordering party 
and reduce processing time; increase overall security; and improve 
DEA's data quality, agency efficiency and responsiveness in carrying 
out its mission.

VI. Effects on Small Businesses

    As part of its notice of proposed rulemaking published on February 
18, 2003, DEA noted that the rulemaking does not constitute a major 
rule as defined by section 804 of the Small Business Regulatory 
Enforcement Fairness Act of 1996. While the actual fee collections as 
part of the registration fee process (independent of this rulemaking) 
result in an annual effect on the economy of $100,000,000 or more, the 
net effect of the fee changes captured in this rulemaking on the 
economy will be less than $100,000,000 and will not result in a major 
increase in costs or prices or cause significant adverse effects on 
competition, employment, investment, productivity, innovation, or on 
the ability of United States-based companies to compete with foreign-
based companies in domestic and export markets. Moreover, the 
individual effect on small business registrants is minimal ranging from 
$130 to $1,625 per year with the majority of affected registrants 
paying an annual fee of $130 (or $390 for three years). In categories 
of registrants qualifying as small businesses (see below), the fee 
represents less than 0.21% of average annual sales (or income) based on 
U.S. Census and Bureau of Labor Statistics data (latest available data 
from 1997). A breakdown of the effect of the fees on

[[Page 58595]]

these categories of registrants is provided below.
    Based on an evaluation of U.S. Census data, a certain percentage of 
manufacturers, hospitals/clinics, and pharmacies, narcotic treatment 
programs and all practitioners that are registrants with the DEA are 
likely to be small, as defined by the Small Business Administration. 
All distributors, importers and exporters are likely to be large. All 
exporters are likely to be large as they usually are also distributors 
or manufacturers, and only large manufacturers are likely to be 
involved in exporting. Researchers, teaching institutions, and 
analytical labs are assumed to be associated with large institutions or 
government entities and therefore not qualifying as small businesses.
    Manufacturers fall into one of two industry classifications: 
pharmaceutical preparation or medicinal and botanical manufacturing. 
Based on DEA data on registered manufacturers, DEA estimates that 381 
of the 460 manufacturers registered with DEA qualify as small 
businesses (Small Business Administration definition of less than 750 
employees). For manufacturers in the small business category of 20-49 
employees, the fee of $1,625 represents less than 0.02% of the average 
annual sales of $9.7 million (U.S. Census figures).
    There are 61,463 pharmacies registered with the DEA and eligible to 
handle controlled substances. According to the National Association of 
Chain Drug Stores (NACDS) and census data on mail order prescription 
firms, there were 35,428 chain pharmacies, mass merchant pharmacies, 
supermarket pharmacies, and mail order pharmacies in 2001 (latest data 
available). It is assumed that the remaining 26,035 DEA registrants are 
independent pharmacies and that these independent pharmacies are small 
businesses. The chain drug stores, mass merchant pharmacies, 
supermarket pharmacies, and mail order pharmacies are assumed to be 
large establishments. For pharmacies in the $250,000-$499,000 category 
of annual sales, a fee of $130 per year represents 0.05% of average 
annual sales. In this category, the mean value of annual sales is 
$429,853 according to the U.S. Census data of which the annual 
registration fee represents 0.03%.
    There are 14,796 hospitals registered with DEA to handle controlled 
substances. U.S. Census data indicate there are 6,590 hospitals; thus 
the remaining 8,206 registrants are assumed to be clinics. Census data 
also indicate there are 4,434 large hospitals; therefore, assuming all 
hospitals are registered with the DEA, DEA estimates there are 2,156 
small hospitals. There are 3,260 clinics that can be defined as large. 
Thus, assuming that all large clinics are registered with DEA, DEA 
assumes that the remaining 4,946 clinics that are DEA registrants are 
small. For hospitals in the small business category of $1 million-$2.5 
million in annual revenue, the annual fee of $130 represents less than 
0.01% of average annual revenues. For clinics and narcotic treatment 
programs with annual revenues of less than $100,000 the annual fee of 
$130 represents 0.13% of annual revenue. Or for entities with the mean 
annual revenue of $61,909 in this group, the fee represents 0.21% of 
annual revenue. There are 1,166 narcotic treatment programs registered 
with the DEA.
    Finally, there are 1,038,000 practitioners registered with the DEA 
to handle controlled substances--the largest registrant category. 
Because practitioners may hold multiple registrations and because 
practitioners register for three-year cycles, this figure may double 
count some practitioners and, accordingly, represents a high estimate. 
The majority of registered practitioners are physicians, followed by 
dentists and veterinarians. As of May 2003, there are 736,449 physician 
registrants, 164,630 dentist registrants, 51,101 veterinarian 
registrants, 44,800 nurse practitioner registrants, and 24,077 
physician assistant registrants. Other practitioner registrants include 
optometrists, nursing homes, animal shelters, ambulances, naturopaths, 
euthanasia technicians, certain pharmacists in the state of Washington, 
certain veterinarian technicians in the state of California, and 
doctors of oriental medicine.
    For the three largest groups of registrants in this category, data 
from the Bureau of Labor Statistics (2001 survey data) indicate the 
average annual salary of physicians to be $110,020, of dentists to be 
$110,790 and of veterinarians to be $69,150. For practitioners with 
average annual salaries of less than $100,000 the annual fee of $130 
represents 0.13% of annual revenue. Of the mean annual salary of 
practitioners in this category ($63,688 per U.S. Census data), the fee 
represents 0.20%. For physicians and dentists which account for 87% of 
practitioner registrants, the fee represents 0.12% of annual average 
salary.
    In summary, while the changes in fee structure will affect a 
substantial number of individual entities that qualify as small 
businesses, the impact will be minimal when evaluated as a percentage 
of average annual sales, revenue or income. Consequently, this rule 
does not create a significant adverse effect on a substantial number of 
small entities. In addition, the rule is not a discretionary action but 
rather responds to a statutory mandate to fully fund the costs of the 
Diversion Control Program through registrant fees.

VII. Registration Fee

A. Effective Date of New Fee Structure

    Based on the methodology described in section V-D of this 
rulemaking and current calculations, to recover the full costs of the 
DCP as required by law, DEA plans to incrementally raise the fees in 
accordance the fee structure summarized in Section V. This fee 
structure replaces the fee structure proposed in the February 18, 2003 
Notice of Proposed Rulemaking.
    This fee schedule will go into effect on December 1, 2003. To be as 
clear as possible about the effective date and to ease processing, this 
effective date represents the first day of the month following the 
mandatory 30 days after the publication of the final rule in the 
Federal Register. The new fee schedule will be in effect for all new 
registration applications postmarked on or after December 1, 2003 and 
all reregistration applications postmarked on or after December 1, 
2003. Registration or reregistration applications postmarked on or 
after this date must, therefore, include the new fee payment.
    Because DEA is required by statute to recover through fees the 
``full costs'' of the DCP, DEA will continue to monitor the costs and 
expenditures of the DCP and will revise the fee structure as necessary. 
DEA does not expect to revise the fee structure again until Fiscal Year 
2006 (to be effective Fiscal Year 2007); however, DEA cannot anticipate 
events or other catalysts that may necessitate major diversion control 
initiatives by the DEA in future years.

B. Individual Registrations

    Several comments were received relating to the use of individual 
registrations for practitioners as opposed to clinics or medical 
facilities. One pharmacist commenter objected to the ability of 
residents and hospital- and clinic-based physicians to use their 
employer's registration number instead of being required by DEA to 
maintain individual registrations. The commenter noted that use of an 
employer's number leads to confusion among pharmacists when the 
computer, cross-checking the number against the practitioner's name, 
indicates that they do not match. The commenter argued that the ability 
to use employer's registration numbers is

[[Page 58596]]

unfair to those who must pay individual registration fees and suggested 
that before registration fees are increased that DEA require all 
prescribers of controlled substances to be individually registered. Two 
commenters noted that it is expensive to license multiple practitioners 
in a practice and that a fee increase would encourage practitioners to 
forego licensure of all practitioners especially in large practices. 
One also noted that it would be beneficial if practitioners could work 
under an umbrella license for the whole clinic.
    The Controlled Substances Act requires that every person who 
manufactures, distributes or dispenses any controlled substance or who 
proposes to engage in the manufacture, distribution or dispensing of 
any controlled substance obtain an annual registration. 21 U.S.C. 
822(a)(1) and 822(a)(2). However, the Controlled Substances Act also 
provides for certain exceptions, including ``an agent or employee of 
any registered manufacturer, distributor, or dispenser of any 
controlled substance or list I chemical if such agent or employee is 
acting in the usual course of his business or employment.'' 21 U.S.C. 
822(c)(1).
    More specifically, ``an individual practitioner who is an agent or 
employee of another practitioner (other than a mid-level practitioner) 
registered to dispense controlled substances'' may be exempted from 
securing his or her own registration but may ``when acting in the 
normal course of business or employment, administer or dispense (other 
than by issuance of prescription) controlled substances if and to the 
extent that such individual practitioner is authorized or permitted to 
do so by the jurisdiction in which he or she practices, under the 
registration of the employer or principal practitioner in lieu of being 
registered him/herself.'' 21 CFR 1301.22. That is, within a group 
practice, for example, one DEA-registered physician may take the 
responsibility for ordering a stock of controlled substances from which 
other physicians in the practice could dispense. However, only the DEA-
registered physician would be authorized to issue prescriptions for 
controlled substances. That is, prescriptions written under a 
particular DEA number may only be written by the physician possessing 
that registration number.
    Additionally, an individual practitioner who is an agent or 
employee of a hospital or other institution also may administer, 
dispense, or prescribe controlled substances under the registration of 
the hospital or other institution which is registered in lieu of being 
registered him/herself (much like a pharmacist operates under the 
pharmacy's DEA registration). However, such registration is permissible 
only if: (1) Such dispensing, administering or prescribing is done in 
the usual course of his/her professional practice; (2) Such individual 
practitioner is authorized or permitted to do so by the jurisdiction in 
which he/she is practicing; (3) The hospital or other institution by 
which he/she is employed has verified that the individual practitioner 
is so permitted to dispense, administer, or prescribe drugs within the 
jurisdiction; (4) Such individual practitioner is acting only within 
the scope of his/her employment in the hospital or institution; (5) The 
hospital or other institution authorizes the individual practitioner to 
administer, dispense or prescribe under the hospital registration and 
designates a specific internal code number for each individual 
practitioner so authorized; and (6) A current list of internal codes 
and the corresponding individual practitioners is kept by the hospital 
or other institution and is made available at all times to other 
registrants and law enforcement agencies upon request for the purpose 
of verifying the authority of the prescribing individual practitioner 
(21 CFR 1301.22). Other registrants would include pharmacies wishing to 
verify the identity and authority of individual practitioners to 
prescribe controlled substances. Note, state laws differ with regard to 
clinic registration and the use of ``umbrella'' registration numbers 
for employees of such clinics.
    A separate registration is required for each principal place of 
business or professional practice at one general physical location 
where controlled substances are manufactured, distributed, imported, 
exported, or dispensed by a person (21 U.S.C. 822(e)).

C. Allocation of Fee Based on Usage

    Four commenters raised issues related to allocation of the 
registration fee according to usage of controlled substances. Three 
commenters wrote that, because veterinarians use a limited amount of 
controlled substances, they should not be expected to be equal partners 
with other practitioners in funding the DCP. Another commenter stated 
that, as staff write only 12 controlled substances prescriptions per 
year, the fee increase would dramatically increase the cost of each of 
these prescriptions per unit.
    The Controlled Substances Act mandates that ``every person'' who 
manufactures, distributes or dispenses any controlled substance or who 
proposes to engage in the manufacture, distribution or dispensing of 
any controlled substance obtain an annual registration (21 U.S.C. 
822(a)(1) and 822(a)(2)). This statute mandates such registration 
irrespective of the extent such persons handle controlled substances. 
Accordingly, DEA may not alter the fee structure to account for the 
extent to which registrants handle controlled substances.

VIII. Enforcement of Controlled Substances Act

    Several commenters expressed concern that Internet pharmaceutical 
companies selling veterinary products at discounted prices are 
undermining veterinarian revenue, with one commenter alleging that 
Internet and catalog pharmacies sell prescription medications directly 
to consumers without a prescription from a veterinarian. Three 
commenters wrote that it is ``not in my profession['s] best interest to 
pay such exuberant fees * * * while the internet companies undercut the 
veterinarian.'' Another commenter stated that Internet pharmacies 
selling controlled substances to consumers without a prescription 
should be fined severely.
    The mission of the Diversion Control Program, as outlined above, is 
to prevent the diversion of licit controlled substances in conformance 
with the Controlled Substances Act. All manufacturers, distributors and 
dispensers of controlled substances are required to obtain a 
registration with the DEA (21 U.S.C. 822(a)(1) and 822(a)(2)). This 
requirement includes Internet-based pharmaceutical companies that 
dispense controlled substances. No dispenser, including Internet-based 
companies, is permitted to dispense controlled substances without the 
prescription of a registered physician or other appropriate 
practitioner. DEA investigates and prosecutes violations of the 
Controlled Substances Act, including the dispensing of controlled 
substances without a legal prescription from an authorized and 
registered practitioner.
    Four commenters, three from the same institution, objected to the 
ability of Internet pharmaceutical companies to sell veterinary 
products directly to consumers thus affecting sales directly through 
the veterinary clinics. Commenters expressed concern that clients were 
purchasing veterinary pharmaceutical supplies through the Internet 
companies when veterinarians ``must write prescriptions,'' thus eroding 
pharmaceutical sales by veterinarians and undermining the

[[Page 58597]]

veterinarian-client relationship. One commenter also alleged that 
Internet pharmacies are selling pharmaceuticals without prescriptions 
from authorized practitioners. Three commenters from the same 
institution suggested that the DEA tax the Internet drug companies to 
fund the DCP and leave the current controlled substance handlers fees 
at the same level.
    DEA assures the commenters that any violations of the Controlled 
Substances Act, including the unauthorized dispensing of controlled 
substances, are subject to prosecution to the fullest extent of the 
law. Over the past several years, DEA has undertaken a number of 
concerted initiatives to control and prevent the diversion of licit 
controlled substances over the Internet, with the number of diversion 
arrests more than doubling between Fiscal Year 1995 and Fiscal Year 
2000. DEA's diversion control actions do not cover legal commerce 
transactions such as the legal dispensing of controlled substances 
through Internet sites or the sale of non-controlled substances (such 
as other veterinary products) which is outside the purview of the DEA. 
DEA also notes that Internet pharmaceutical companies, like other 
dispensers of controlled substances, must register with the DEA in 
order to handle controlled substances and as such already pay a 
registration fee like other registered dispensers.

IX. Miscellaneous Issues

A. Mandatory $15 Million Transfer to U.S. Treasury

    One commenter objected to registrant fees supporting the mandatory 
transfer of $15 million to the U.S. Treasury, noting that this burden 
should not be placed on registrants and requesting that DEA petition 
Congress to appropriate the required $15 million, so that all fee funds 
are used to support DCP activities.
    DEA is required by the Appropriations Act of 1993 to transfer the 
first $15 million of fee revenue to the General Fund of the Treasury 
each year (21 U.S.C. 886a(1)). Calculation of the fees, therefore, must 
account for this mandated transfer. That is, DEA has no discretion in 
that matter, and the fees collected by DEA must represent the total 
amount necessary to ``fully fund'' the DCP by law plus an additional 
$15 million. For the period of Fiscal Year 1993 through Fiscal Year 
1998, Congress appropriated an additional $15 million to offset the 
transfer requirement (a total infusion to the DDCFA of $90 million). 
However, beginning in Fiscal Year 1999, Congress discontinued this 
additional appropriation, and the additional $15 million became an 
additional net expense to the DCP at that time. Congress has not agreed 
to appropriate the additional $15 million towards the mandatory 
transfer since that time.

B. Alternative Funding Sources for DCP

    Seven commenters raised the issue of finding alternative sources of 
funding for the DCP to replace the registration fees, including 
congressional funding and collecting fees from other non-registrant 
entities (e.g., health insurance companies). As has been detailed 
above, DEA's authority to charge registration fees to support the DCP 
derives from three statutory provisions. Of these provisions, the 
Appropriations Act of 1993 specifically mandates that DEA collect 
through fees an amount sufficient to ensure the recovery of the ``full 
costs'' (emphasis added) of the DCP (21 U.S.C. 886(a)(3)). That is, DEA 
is required by statute to fully fund DCP expenses through registration 
fees. For the period of Fiscal Year 1993 through Fiscal Year 1998, 
Congress appropriated an additional $15 million to the DDCFA to offset 
the annual mandatory $15 million transfer to the U.S. Treasury 
described in the previous section. Such appropriations were 
discontinued beginning in Fiscal Year 1999, and the DCP remains 
entirely funded through registration fees.

C. Clarification of Fee Amount

    Certain registrants pay a single fee for a three-year registration 
period. Such registrants include dispensers (including practitioners, 
hospitals/clinics, and retail pharmacies) and teaching institutions. 
Since publication of the February 18, 2003 notice of proposed 
rulemaking, DEA has finalized a number of other regulatory actions 
which affect the CFR sections amended by this final rule. On June 24, 
2003, DEA finalized regulations regarding the use of central fill 
pharmacies to fill controlled substances prescriptions on behalf of 
retail pharmacies (68 FR 37405). This final rule amended 21 CFR 
1301.13(e)(1)(iii) to add ``central fill pharmacy'' as a business 
activity under dispensing (effective July 24, 2003). Consequently, 
central fill pharmacies are subject to the same fee as all other 
dispensers, including pharmacies and teaching institutions. Effective 
with this rulemaking, the registration/reregistration fee for 
dispensers, including central fill pharmacies, and teaching 
institutions is $390 for a three-year period.
    Because other categories of registrants secure a registration on an 
annual basis, much of the discussion in this rulemaking addressed the 
value of annual registration. In such discussions, DEA often referred 
to an annual value of $130 which is one-third of $390.
    The annual registration and reregistration fee for researchers, 
narcotic treatment programs (including compounders), effective with 
this rulemaking, is $130. These categories of registrants obtain a 
registration and pay the associated fee on an annual basis.
    This rulemaking also establishes new annual registration/
reregistration fee amounts for manufacturers of $1,625, for 
distributors of $813, for importers of $813, and for exporters of $813. 
Reverse distributors are subject to the same annual fee of $813 as 
distributors as a result of an interim rule published by DEA on July 
11, 2003 defining ``reverse distributor'' and establishing reverse 
distributor as a new category of registration. (68 FR 41222). This 
interim rule amended 21 CFR 1301.13 by redesignating paragraph 
(e)(1)(iii) which contained dispensing activities as paragraph 
(e)(1)(iv) and adding a new paragraph (e)(1)(iii) ``reverse 
distributors''. In its February 18, 2003 Federal Register notice 
proposing new registration and reregistration application fees, DEA 
inadvertently included language in the regulatory text regarding fees 
to be assessed to reverse distributors (referred to as ``disposers'' in 
the proposed rulemaking), although regulations establishing reverse 
distributor as a new registration category had not yet been 
established. As regulations establishing reverse distributors as a new 
category of registration have now been established, the fees included 
in this final rule are now accurate and apply as delineated above to 
this category of registrants. In its February 18, 2003 proposed rule 
DEA also inadvertently assigned an incorrect annual fee of $131 to 
disposers. As described above, reverse distributors or disposers, like 
other distributors, are subject to an annual fee of $813.

Regulatory Analyses

Regulatory Flexibility Act

    The Deputy Assistant Administrator hereby certifies that this 
rulemaking has been drafted in accordance with the Regulatory 
Flexibility Act (5 U.S.C. 605(b)), has reviewed this regulation, and by 
approving it certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. DEA 
recognizes that this regulation will have a financial effect on a 
substantial number of registrants with the increase in fees; however, 
DEA believes that, based on the length of time between fee

[[Page 58598]]

adjustment, the program growth and cost increases, and the overall size 
of the increase in fees, the change in fees is not significant, and the 
economic impact of the fees on individual registrants is not 
significant. The fee represents from 0.21% to as little as 0.01% of 
average annual sales (or income) for registrants qualifying as small 
businesses. Moreover, the fees have not been changed in ten years, and 
DEA is legally mandated to collect fees to cover the full costs of the 
Diversion Control Program. The appropriations process was used to 
determine the budget on which the fees are based. The increase in fees 
after ten years covers both inflation and enhancements to address 
additional responsibilities assumed by the Diversion Control Program.
    In considering options for collecting the full costs of the 
Diversion Control Program as mandated by law (21 U.S.C. 886a(3)), DEA 
considered several alternatives to the approach used in this 
regulation. One alternative would be to reset the fee each year for 
each category of registrant according to the budget authority. Another 
alternative would be to set a different fee for each fiscal year. 
Commenters suggested both of these approaches. DEA determined that both 
of these options would cause unnecessary confusion with fee changes 
each year and would impose greater administrative and financial burdens 
on DEA and registrants than the approach used in this regulation. 
Moreover, resetting the fee each year, for example, would unfairly 
affect practitioners differently depending on their registration 
renewal year; some practitioners would pay more than others. Using 
actual budget authority figures instead of estimated budget authority 
figures, as used in this rulemaking, would not give registrants 
sufficient notice as to fee changes. Doing so also could result in DEA 
not collecting the full costs of the DCP as required by law in a timely 
manner. In calculating the fees contained in this rule, DEA used 
estimated budget authorities based on expected inflation and program 
enhancements as is standard government practice for forecasting future 
budgets.

Executive Order 12866

    The Deputy Assistant Administrator certifies that this rulemaking 
has been drafted in accordance with the principles in Executive Order 
12866 Section 1(b). This action has been reviewed by the Office of 
Management and Budget.

Executive Order 12988

    This regulation meets the applicable standards set forth in 
Sections 3(a) and 3(b)(2) of Executive Order 12988 Civil Justice 
Reform.

Executive Order 13132

    This rulemaking does not preempt or modify any provision of state 
law; nor does it impose enforcement responsibilities on any state; nor 
does it diminish the power of any state to enforce its own laws. 
Accordingly, this rulemaking does not have federalism implications 
warranting the application of Executive Order 13132.

Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by State, local, and 
tribal governments, in the aggregate of $100,000,000 or more in any one 
year, and will not significantly or uniquely affect small governments. 
While it will affect the private sector in excess of $100,000,000 per 
year, the effect on individual entities is minimal. The majority of the 
affected entities will pay $130 per year (or $390 for a three-year 
registration period). Moreover, this rule is promulgated in compliance 
with Congressional mandate that the full cost of operating the DCP be 
collected through registrant fees as stipulated in the 1993 Departments 
of Commerce, Justice, and State, the Judiciary, and Related Agencies 
Appropriations Act (Pub. L. 102-395) and codified in 21 U.S.C. 886a(3). 
Detailed estimates and analyses, including specific fee amounts for 
individual registrants, are included in the preamble text.

Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by Section 804 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. The net 
effect of the fee changes captured in this rulemaking on the economy 
will be less than $100,000,000 and will not result in a major increase 
in costs or prices or cause significant adverse effects on competition, 
employment, investment, productivity, innovation, or on the ability of 
United States-based companies to compete with foreign-based companies 
in domestic and export markets. This rule is not a discretionary action 
but rather responds to the Congressional mandate that the full 
operating costs of the DCP be collected through registrant fees as 
described above. The individual effect on small business registrants is 
minimal ranging from $130 to $1,625 per year with the majority of 
affected registrants paying an annual fee of $130 (or $390 for three 
years). As discussed in detail in the preamble, the fee represents less 
than 0.21% of annual sales or income for the smallest categories of 
registrants qualifying as small businesses according to Small Business 
Administration definitions.

List of Subjects in 21 CFR Part 1301

    Administrative practice and procedure, Drug traffic control, 
Security measures.

0
For the reasons set out above, 21 CFR part 1301 is amended as follows:

PART 1301--[AMENDED]

0
1. The authority citation for part 1301 continues to read as follows:

    Authority: 21 U.S.C. 821, 822, 823, 824, 871(b), 875, 877.


0
2. Section 1301.13 is amended by revising paragraph (e)(1) to read as 
follows:


Sec.  1301.13  Application for registration; time for application; 
expiration date; registration for independent activities; application 
forms, fees, contents and signature; coincident activities.

* * * * *
    (e) * * *
    (1)

[[Page 58599]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Registration
        Business activity              Controlled substances         DEA application forms       Application       period        Coincident activities
                                                                                                  fee  ($)         (years)              allowed
--------------------------------------------------------------------------------------------------------------------------------------------------------
(i) Manufacturing................  Schedules I-V...............  New--225....................           1,625               1  Schedules I-V:May
                                                                 Renewal--225a...............           1,625                   distribute that
                                                                                                                                substance or class for
                                                                                                                                which registration was
                                                                                                                                issued; may not
                                                                                                                                distribute or dispose
                                                                                                                                any substance or class
                                                                                                                                for which not
                                                                                                                                registered. Schedules II-
                                                                                                                                V: except a person
                                                                                                                                registered to dispose of
                                                                                                                                any controlled substance
                                                                                                                                may conduct chemical
                                                                                                                                analysis and preclinical
                                                                                                                                research (including
                                                                                                                                quality control
                                                                                                                                analysis) with
                                                                                                                                substances listed in
                                                                                                                                those schedules for
                                                                                                                                which authorization as a
                                                                                                                                mfg. Was issued.
(ii) Distributing................  Schedules I-V...............  New--225....................             813               1  .........................
                                                                 Renewal--225a...............             813
(iii) Reverse distributing.......  Schedules I-V...............  New--225....................             813               1  .........................
                                                                 Renewal 225a................             813
(iv) Dispensing or instructing     Schedules II-V..............  New--224....................             390               3  May conduct research and
 (includes Practitioner, Hospital/                               Renewal--224a...............             390                   instructional activities
 Clinic, Retail Pharmacy, Central                                                                                               with those substances
 Fill Pharmacy, Teaching                                                                                                        for which registration
 Institution).                                                                                                                  was granted, except that
                                                                                                                                a mid-level practitioner
                                                                                                                                may conduct such
                                                                                                                                research only to the
                                                                                                                                extent expressly
                                                                                                                                authorized under state
                                                                                                                                statute. A pharmacist
                                                                                                                                may manufacture an
                                                                                                                                aqueous or oleaginous
                                                                                                                                solution or solid dosage
                                                                                                                                form containing a
                                                                                                                                narcotic controlled
                                                                                                                                substance in Schedule II-
                                                                                                                                V in a proportion not
                                                                                                                                exceeding 20% of the
                                                                                                                                complete solution,
                                                                                                                                compound or mixture. A
                                                                                                                                retail pharmacy may
                                                                                                                                perform central fill
                                                                                                                                pharmacy activities.
(v) Research.....................  Schedule I..................  New--225....................             130               1  A researchermay
                                                                 Renewal--225a...............             130                   manufacture or import
                                                                                                                                the basic class of
                                                                                                                                substance or substances
                                                                                                                                for which registration
                                                                                                                                was issued, provided
                                                                                                                                that such manufacture or
                                                                                                                                import is set forth in
                                                                                                                                the protocol required in
                                                                                                                                Section 1301.18 and to
                                                                                                                                distribute such class to
                                                                                                                                persons registered or
                                                                                                                                authorized to conduct
                                                                                                                                research with such class
                                                                                                                                of substance or
                                                                                                                                registered or authorized
                                                                                                                                to conduct chemical
                                                                                                                                analysis with controlled
                                                                                                                                substances.
(vi) Research....................  Schedules II-V..............  New--225....................             130               1  May conduct chemical
                                                                 Renewal--225a...............             130                   analysis with controlled
                                                                                                                                substances in those
                                                                                                                                schedules for which
                                                                                                                                registration was issued;
                                                                                                                                manufacture such
                                                                                                                                substances if and to the
                                                                                                                                extent that such
                                                                                                                                manufacture is set forth
                                                                                                                                in a statement filed
                                                                                                                                with the application for
                                                                                                                                registration or
                                                                                                                                reregistration and
                                                                                                                                provided that the
                                                                                                                                manufacture is not for
                                                                                                                                the purposes of dosage
                                                                                                                                form development; import
                                                                                                                                such substances for
                                                                                                                                research purposes;
                                                                                                                                distribute such
                                                                                                                                substances to persons
                                                                                                                                registered or authorized
                                                                                                                                to conduct chemical
                                                                                                                                analysis, instructional
                                                                                                                                activities or research
                                                                                                                                with such substances,and
                                                                                                                                to persons exempted from
                                                                                                                                registration pursuant to
                                                                                                                                Section 1301.24; and
                                                                                                                                conduct instructional
                                                                                                                                activities with
                                                                                                                                controlled substances.
(vii) Narcotic Treatment Program   Narcotic Drugs in Schedules   New--363....................             130               1  .........................
 (including compounder).            II-V.                        Renewal 363a................             130
(viii) Importing.................  Schedules I-V...............  New--225....................             813               1  May distribute that
                                                                 Renewal--225a...............             813                   substance or class for
                                                                                                                                which registration was
                                                                                                                                issued; may not
                                                                                                                                distribute any substance
                                                                                                                                or class for which not
                                                                                                                                registered.
(ix) Exporting...................  Schedules I-V...............  New--225....................             813               1
                                                                 Renewal--225a...............             813

[[Page 58600]]

 
(x) Chemical Analysis............  Schedules I-V...............  New--225....................             130               1  May manufacture and
                                                                 Renewal--225a...............             130                   import controlled
                                                                                                                                substances for
                                                                                                                                analytical
                                                                                                                                orinstructional
                                                                                                                                activities; may
                                                                                                                                distribute such
                                                                                                                                substances to persons
                                                                                                                                registered or authorized
                                                                                                                                to conduct chemical
                                                                                                                                analysis, instructional
                                                                                                                                activities, or research
                                                                                                                                with such substances and
                                                                                                                                to persons exempted from
                                                                                                                                registration pursuant to
                                                                                                                                section 1301.24; may
                                                                                                                                export such substances
                                                                                                                                to persons in other
                                                                                                                                countries performing
                                                                                                                                chemical analysis or
                                                                                                                                enforcing laws related
                                                                                                                                to controlled substances
                                                                                                                                or drugs in those
                                                                                                                                countries; and may
                                                                                                                                conduct instructional
                                                                                                                                activities with
                                                                                                                                controlled substances.
--------------------------------------------------------------------------------------------------------------------------------------------------------

* * * * *

    Dated: October 7, 2003.
Laura M. Nagel,
Deputy Assistant Administrator, Office of Diversion Control.
[FR Doc. 03-25817 Filed 10-9-03; 8:45 am]
BILLING CODE 4410-09-P