[Federal Register Volume 80, Number 178 (Tuesday, September 15, 2015)]
[Notices]
[Pages 55418-55501]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23038]



[[Page 55417]]

Vol. 80

Tuesday,

No. 178

September 15, 2015

Part II





Department of Justice





-----------------------------------------------------------------------





Drug Enforcement Administration





Masters Pharmaceuticals, Inc.; Decision and Order; Notice

  Federal Register / Vol. 80 , No. 178 / Tuesday, September 15, 2015 / 
Notices  

[[Page 55418]]


-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

[Docket No. 13-39]


Masters Pharmaceuticals, Inc.; Decision and Order

    On August 9, 2013, the Deputy Assistant Administrator, Office of 
Diversion Control, Drug Enforcement Administration, issued an Order to 
Show Cause to Masters Pharmaceuticals, Inc. (hereinafter, Respondent). 
ALJ Ex. 1. The Show Cause Order proposed the revocation of Respondent's 
DEA Certificate of Registration Number RD0277409, pursuant to which it 
is authorized to distribute controlled substances in schedules II 
through V, at the registered location of 11930 Kemper Springs, 
Cincinnati, Ohio, and the denial of any pending application to renew or 
modify its registration, on the ground that its ``continued 
registration is inconsistent with the public interest.'' Id. (citing 21 
U.S.C. 824(a)(4)).
    The Show Cause Order specifically alleged that on April 21, 2009, 
Respondent entered into a Memorandum of Agreement (MOA) with DEA, 
pursuant to which it agreed ``to `maintain a compliance program to 
detect and prevent [the] diversion of controlled substances as required 
under the [Controlled Substances Act] and applicable DEA regulations.' 
'' Id. (quoting MOA at ] II.1.a). The Order also alleged that in the 
MOA, Respondent `` `acknowledg[ed] and agree[d] that the obligations 
undertaken . . . do not fulfill the totality of its obligations to 
maintain effective controls against the diversion of controlled 
substances or to detect and report to DEA suspicious orders for 
controlled substances.' '' Id.
    The Order then alleged that notwithstanding ``the MOA, the specific 
guidance provided to [Respondent] by DEA, and the public information 
readily available regarding the oxycodone epidemic in Florida, and in 
the United States, [Respondent] failed to maintain effective controls 
against the diversion of controlled substances . . . in violation of 21 
U.S.C. 823(b)(1) and (e)(1).'' Id. at 1-2. The Order then alleged that 
from April 1, 2009 through December 31, 2009, Respondent distributed 
more than 37 million dosage units of oxycodone nationally and that 
nearly 25 million dosage units ``were distributed to its Florida 
customers,'' and that the latter distributions ``well exceeded'' its 
distributions to customers in other States.\1\ Id. at 2. The Order 
further alleged that during 2010, Respondent distributed 37.86 million 
dosage units of oxycodone nationally, of which nearly 24.4 million 
dosage units ``were distributed to its Florida customers.'' \2\ Id. 
Finally, the Order alleged that between January 1 and March 31, 2011, 
Respondent distributed 6.1 million dosage units of oxycodone 
nationally, of which approximately 2.76 million dosage units ``were 
distributed to its Florida customers.'' \3\ Id.
---------------------------------------------------------------------------

    \1\ By contrast, the Order alleged that during this period, 
Respondent distributed approximately 1.47 million dosage units of 
oxycodone to its Nevada customers, 1.27 million to its Tennessee 
customers, 1.14 million to its Pennsylvania customers, and 1.09 
million to its New Jersey customers. ALJ Ex. 1, at 2.
    \2\ By contrast, the Order alleged that during 2010, Respondent 
distributed approximately 2.8 million dosage units of oxycodone to 
its Nevada customers, 2.14 million to its Tennessee customers, 1.7 
million to its New Jersey customers, and 1.37 million to its 
Pennsylvania customers. ALJ Ex. 1, at 2.
    \3\ By contrast, the Order alleged that during this period, 
Respondent distributed approximately 600,000 dosage units of 
oxycodone to its Tennessee customers, 415,000 to its New Jersey 
customers, 304,000 to its Pennsylvania customers, and 192,000 to its 
Nevada customers. ALJ Ex. 1, at 2.
---------------------------------------------------------------------------

    Next, the Show Cause Order alleged that ``[s]ince at least 2009, 
the majority of [Respondent's] largest purchasers of oxycodone . . . 
have been retail pharmacies in the State of Florida who [it] knew or 
should have known were distributing controlled substances based on . . 
. prescriptions that were issued for other than a legitimate medical 
purpose and outside [of] the usual course of professional practice.'' 
Id. at 3. The Order then made allegations regarding Respondent's 
distributions of oxycodone 30 mg to eight pharmacies. More 
specifically, the Order alleged that:

    1. ``From April 1, 2009 through November 30, 2010, [it] 
distributed approximately 591,800 dosage units . . . to Tru-Valu 
Drugs'';
    2. ``From April 1, 2009 through January 31, 2011, [it] 
distributed approximately 993,100 dosage units . . . to The Drug 
Shoppe'';
    3. ``From April 1, 2009 through March 31, 2011, [it] distributed 
approximately 333,000 dosage units . . . to the Medical Plaza 
Pharmacy'';
    4. ``From April 1, 2009 through September 30, 2010, [it] 
distributed approximately 1.275 million dosage units . . . to 
Englewood Specialty Pharmacy'';
    5. ``From April 1, 2009 through December 31, 2010, [it] 
distributed approximately 570,700 dosage units . . . to City View 
Pharmacy'';
    6. ``From January 1, 2009 through November 30, 2010, [it] 
distributed approximately 1.7 million dosage units . . . to Lam's 
Pharmacy'';
    7. ``From April 1, 2009 through August 31, 2009, [it] 
distributed approximately 637,400 dosage units . . . to Morrison's 
RX''; and
    8. ``From January 1, 2009 through December 2009, [it] 
distributed approximately 351,600 dosage units . . . to Temple 
Terrace Pharmacy.''

Id.

    The Show Cause Order then alleged that Respondent ``consistently 
ignored and/or failed to implement its own due diligence and suspicious 
order monitoring policies, compromising the effectiveness of those 
policies.'' Id. Continuing, the Order alleged that ``notwithstanding 
the large quantities of controlled substances ordered by [its] retail 
pharmacy customers, [Respondent] failed to conduct meaningful due 
diligence to ensure that the controlled substances were not diverted'' 
and ``ignor[ed] and/or fail[ed] to document red flags of diversion 
present at many of its retail pharmacy customers.'' Id. Finally, the 
Order alleged that Respondent ``failed to detect and report suspicious 
orders of oxycodone products by its pharmacy customers, as required by 
21 CFR 1301.74(b).'' Id.
    Following service of the Show Cause Order, Respondent requested a 
hearing on the allegations. ALJ Ex. 3. The matter was placed on the 
docket of the Office of Administrative Law Judges, and assigned to ALJ 
Gail Randall (hereinafter, ALJ). ALJ's Recommended Decision (R.D.), at 
1. Following pre-hearing procedures, see generally ALJ Exs. 5-11, the 
ALJ conducted an evidentiary hearing on February 24 through 28 and 
March 3 through 4, 2014, in Arlington, Virginia. Following the hearing, 
both parties filed briefs containing their proposed findings of fact 
and conclusions of law.
    On June 19, 2014, the ALJ issued her Recommended Decision. Applying 
the public interest standard of 21 U.S.C. 823(b), the ALJ noted that 
the relevant factors were factors one--the maintenance of effective 
controls against diversion--and four--Respondent's experience in the 
distribution of controlled substances.
    The ALJ rejected the Government's contention that Respondent had 
failed to report numerous suspicious orders, which it filled and 
shipped, upon subsequently determining that the customer was likely 
engaged in diverting controlled substances. R.D. at 154-61. Noting that 
the relevant regulation requires the reporting of a suspicious order 
``when discovered,'' 21 CFR 1301.74(b), the ALJ opined that neither the 
regulation's language nor its purpose ``supports the conclusion that a 
registrant is required to review past orders from pharmacies the 
registrant later learns may be diverting controlled

[[Page 55419]]

substances.'' Id. at 157. The ALJ did, however, conclude that the 
regulation ``impose[s] a duty to report past orders [that] the 
registrant actually discovers were suspicious.'' Id. at 158. However, 
based on her review of the record, the ALJ concluded that Respondent 
had only failed to report a single suspicious order. Id.
    Turning to the Government's contention that Respondent had failed 
to maintain effective controls against diversion, the ALJ concluded 
that the Government's evidence as to the volume of Respondent's sales 
to Florida and the eight pharmacies in particular did not support a 
finding that it was in violation of this duty. Id. at 164-67. As the 
ALJ explained, ``the sheer volume of a respondent's controlled 
substances sales or purchases, without some kind of contextual 
background to link the sales to the respondent's duty under the CSA, 
cannot be used to indicate that the distributor's registration would be 
against the public interest.'' Id. at 164. The ALJ further noted that 
the Government did not present a ``statistical expert or any other 
evidence to explain why the volume of Respondent's sales was 
necessarily indicative of diversion.'' Id. at 166. She also credited 
the testimony of Respondent's statistical expert that the ``shipments 
to the DEA-identified pharmacies rarely stand out from the rest of the 
monthly shipments''; that because Respondent does not have access to 
the Agency's ARCOS database, ``it cannot compare its shipments to 
[those] made by other distributors''; that ``Respondent's business 
model as a secondary supplier made comparisons across pharmacies 
practically useless''; and that comparing its distributions to Florida 
customers with those in other States was not ``very meaningful because 
there [are] so many factors that are relevant.'' Id. at 167 (citations 
omitted).
    Next, the ALJ rejected the Government's contention that Respondent 
failed to follow its own policies and procedures. Id. at 170-79. The 
ALJ first found that Respondent's Policies and Procedures required that 
an order placed on compliance hold by its Suspicious Order Monitoring 
System (SOMS) be subject to additional due diligence which included: 
(1) Contacting the customer to discern the reason for the deviation in 
size, pattern, or frequency; (2) independently verifying the reason 
stated by the customer; and (3) conducting a complete file review. Id. 
at 73-74, 76-77. While the Government cited numerous instances in which 
Respondent's employees released orders without documenting having 
performed the above steps, the ALJ rejected its contention, reasoning 
that Respondent's Policies and Procedures did ``not require 
documentation of the reasons for the release of a held order.'' Id. at 
171. And while noting ``that Respondent documented some reasons for 
abnormal orders,'' she further reasoned that ``[t]he mere absence of 
documentation--documentation that is not required by Respondent's 
Policies and Procedures, DEA regulations, or any established industry 
standard--does not constitute substantial evidence that the 
undocumented act did not occur.'' Id. at 172; see also id. at 173-74, 
176.
    Next, the ALJ addressed the Government's contention that Respondent 
failed to properly use the Utilization Reports (URs) which it obtained 
from its pharmacy customers. Id. at 179-95. While the ALJ found that 
Respondent was required under its policies and procedures to obtain a 
UR from a pharmacy customer whenever it placed an order on compliance 
hold and yet repeatedly failed to do so, id. at 181, she otherwise 
rejected the Government's contention that Respondent did not properly 
utilize the URs in its review of the held orders. Id. at 181-92.
    In rejecting the Government's contention, the ALJ explained that 
because DEA was obligated under a Memorandum of Agreement (MOA) to 
conduct a compliance review and notify Respondent of any deficiencies 
in its policies and procedures and failed to do so with respect to its 
use of the URs, the MOA bars the Agency ``from sanctioning Respondent 
for not implementing additional UR analyses into its Policies and 
Procedures.'' R.D. at 186. While noting the parties' agreement ``that 
controlled substance ratios are an important aspect that should be 
investigated prior to shipping controlled substances,'' the ALJ then 
reasoned that ``[t]he Government offered no evidence that accurate 
information regarding controlled substance ratios can only be acquired 
through URs.'' Id. at 188-89. She also rejected the Government's 
contention that Respondent's actions in editing or deleting orders that 
were placed on hold by the SOMS established that it did not maintain 
effective controls against diversion or failed to report suspicious 
orders, noting that Respondent edited and deleted orders ``for business 
reasons.'' Id. at 196.
    While acknowledging that the Government had proved that Respondent 
had failed to report a single suspicious order, the ALJ reasoned that 
``Respondent fills many orders each year and has reported hundreds of 
suspicious orders, so one minor oversight does not render the entire 
system ineffective.'' Id. at 201. The ALJ thus concluded that 
Respondent had ``substantially complied with 21 CFR 1301.74(b),'' and 
that its failure to report the suspicious order did not justify the 
revocation of its registration. Id.
    As for her finding that Respondent had violated its own policies 
and procedures by failing to obtain a UR every time an order was held 
by the SOMS, the ALJ reasoned that ``the relevant question . . . is not 
simply whether Respondent failed to follow its policies, but whether 
such failure rendered [its] system [for maintaining effective controls] 
ineffective . . . and/or constituted negative experience distributing 
controlled substances so as to justify revocation.'' Id. The ALJ then 
explained that Respondent's failure to follow its policies and 
procedures did not render them ineffective per se and that the 
Government was required to show that diversion was the ``direct and 
forseeable consequence'' of its failure to follow its policy in order 
to establish that its due diligence program was ineffective. Id. at 
202. Because ``the Government made no showing that the shipments 
Respondent made without requiring URs were likely to be diverted,'' or 
``that updated URs, had they been requested, would have indicated that 
the drugs were likely to be diverted,'' the ALJ concluded that 
Respondent's failure to obtain the URs did not ``justify revocation.'' 
Id. The ALJ thus recommended that Respondent be allowed to retain its 
registration and that the Administrator approve any pending renewal 
application. Id. at 203.
    Both parties filed Exceptions to the ALJ's Recommended Decision. 
Thereafter, the record was forwarded to me for final agency action. 
Having reviewed the record in its entirety, and having carefully 
considered the ALJ's Recommended Decision as well as the parties' 
Exceptions,\4\ I respectfully reject the ALJ's decision for reasons 
explained throughout this decision.
---------------------------------------------------------------------------

    \4\ I address the various exceptions raised by the Parties 
throughout this decision.
---------------------------------------------------------------------------

    To summarize my reasons, I do agree with the ALJ that the 
Government's evidence as to the volume of Respondent's sales to the 
Florida pharmacies and the State in general does not constitute 
substantial evidence that the pharmacies were likely diverting 
controlled substances. I also agree with the ALJ's rejection of the 
Government's contention that Respondent, upon terminating a customer 
because it was likely diverting controlled substances, was obligated to 
review the customer's past orders and

[[Page 55420]]

determine whether any of them were suspicious and, if so, report them. 
However, I do so because, even assuming that the Government's 
interpretation is a reasonable reading of the suspicious order 
regulation, the Government has not provided pre-enforcement notice to 
the regulated community of this obligation.
    Moreover, while I agree with the ALJ that ``a pharmacy's business 
model, dispensing patterns, or other characteristics might make an 
order suspicious, despite the particular order not being of unusual 
size, pattern or for frequency,'' I respectfully disagree with her 
conclusion that these characteristics must ``make it likely that 
controlled substances will be diverted'' to trigger the reporting 
requirement. R.D. at 155. In short, the ALJ's interpretation imposes a 
higher standard than that of the plain language of the regulation, 
which requires only that the order be suspicious, a standard which is 
less than that of probable cause.
    Although I agree with the ALJ that upon investigating an order, a 
distributor may determine that an order is not suspicious, I 
respectfully disagree with her conclusion that ``Respondent provided 
ample evidence that the pharmacies had legitimate reasons for the high 
percentage of controlled substances dispensed by the pharmacies in 
dispute.'' R.D. at 189. Indeed, I find the evidence offered by 
Respondent on this point to be seriously lacking in probative force.\5\
---------------------------------------------------------------------------

    \5\ Respondent's evidence on this point was largely comprised of 
the declaration of the head of its Compliance Department, Ms. 
Jennifer Seiple, regarding its due diligence efforts. I acknowledge 
that the ALJ found Ms. Seiple's testimony credible and clearly gave 
it substantial weight. However, for reasons explained throughout 
this decision, I find that much of Ms. Seiple's testimony as to the 
reasons why Respondent did not report the various pharmacies' orders 
as suspicious is unpersuasive. In other instances, her testimony is 
refuted by other evidence. Accordingly, I decline to give Ms. 
Seiple's testimony substantial weight. See Universal Camera Corp. v. 
NLRB, 340 U.S. 474, 496 (1951) (``The substantial evidence standard 
is not modified in any way when the [Agency] and its [ALJ] disagree. 
. . . The findings of the [ALJ] are to be considered along with the 
consistency and inherent probability of testimony. The significance 
of [her] report, of course, depends largely on the importance of 
credibility in the particular case.'').
---------------------------------------------------------------------------

    I also respectfully disagree with the ALJ's conclusion that the 
Government did not prove that Respondent repeatedly failed to contact 
the pharmacies and obtain an explanation for those orders which were 
held by the SOMS because they were of unusual size, deviated 
substantially from a normal pattern, or were of unusual frequency. 
Rather, I find that the record contains substantial evidence that 
Respondent represented to the Agency that it would document the reason 
why it filled those orders that were held by the SOMS. Thus, where 
there is no such documentation that Respondent contacted the pharmacy, 
I find that Respondent did not contact the pharmacy. Moreover, while in 
many instances there is no documentation that Respondent contacted the 
pharmacy, Respondent's records document a reason for filling the order 
that is extraneous to the reason one would expect to be provided by a 
pharmacy. Accordingly, I find that in numerous instances, the record 
supports a finding that Respondent failed to contact the pharmacy and 
obtain an explanation for those orders.
    I also respectfully disagree with the ALJ's conclusion that 
Respondent's actions in editing or deleting orders that had been held 
by the SOMS (typically because they were of unusual size) does not 
establish that the orders were suspicious. While the ALJ reasoned that 
``orders were edited and deleted for business reasons,'' I find that 
the weight of evidence is to the contrary and that most of the edited 
and deleted orders were suspicious and should have been reported.
    Further, I respectfully disagree with the ALJ's rejection of the 
Government's contention that Respondent failed to properly use the URs 
because it did not use them to analyze the pharmacies' ratio of 
controlled to non-controlled dispensings. As for the ALJ's reasoning 
that the 2009 Memorandum of Agreement (MOA) bars the Government from 
sanctioning Respondent for failing to use the URs in this manner, 
nothing in the MOA provided Respondent with immunity for violations of 
DEA regulations occurring after March 31, 2009. Moreover, I conclude 
that the ALJ did not apply the correct legal standard in evaluating 
Respondent's contention that it reasonably relied on the Government's 
failure to identify the manner in which it used the URs as a deficiency 
in the compliance review and that therefore, the Government should be 
barred from sanctioning it based on this conduct. Instead, I conclude 
that Respondent's defense should have been evaluated under the doctrine 
of equitable estoppel and I reject its contention.
    I also respectfully disagree with the ALJ's conclusion that use of 
the URs was not necessary to obtain accurate information regarding the 
pharmacies' dispensing ratios. Rather, I conclude that a distributor is 
required to use the most accurate information available to it. Because 
the URs show the actual dispensing level of each drug, and 
questionnaires and surveys provide only estimates, I conclude that a 
distributor must use the URs in evaluating whether a customer's 
dispensing ratio is suspicious.
    Next, I respectfully disagree with the ALJ's conclusion that 
Respondent's failure to obtain a new UR every time an order was held by 
the SOMS did not render its policies and procedures ineffective. R.D. 
202. Contrary to the ALJ's understanding, the Government was not 
required to show that the shipments Respondent made without requiring a 
new UR ``were likely to be diverted,'' id., but rather, only that its 
failure to obtain a new UR rendered its system for detecting suspicious 
orders ineffective. For reasons explained in this decision, I conclude 
that Respondent's repeated failure to obtain new URs, both when orders 
were held, as well as when its own inspector recommended that it do so, 
rendered its suspicious order monitoring system defective.
    Finally, I respectfully disagree with the ALJ's conclusion that the 
Government has proven only that Respondent failed to report a single 
suspicious order. To the contrary, I find that each of the seven 
pharmacies submitted numerous suspicious orders which should have been 
reported but were not. Accordingly, I respectfully disagree with the 
ALJ's ultimate conclusion that Respondent has substantially complied 
with the Agency's suspicious order rule and her recommendation that 
revocation of its registration is not warranted.
    Having reviewed the entire record including the ALJ's Recommended 
Decision and the Parties' Exceptions, as ultimate factfinder, see 5 
U.S.C. 557(b), I make the following factual findings.

Findings

    Respondent is a secondary or ``tertiary'' wholesaler of various 
pharmaceutical products including controlled substances; ``[t]he vast 
majority of [its] customers are independent, retail pharmacies located 
throughout the United States,'' which are ``[o]ften . . . small, family 
owned and operated stores.'' RX 104, at 6-7; Tr. 994. According to its 
CEO and owner, it ``is not a primary or full line wholesaler'' and 
``carries far fewer products than primary wholesalers.'' Id. Moreover, 
``none of [its] customers use [it] as the sole source for all the 
pharmaceutical products they dispense.'' RX 104, at 7. And according to 
its owner, its ``business model tends to make its customers' purchasing 
patterns more difficult to predict and more variable than they would be 
if Masters were a full-line wholesaler.'' Id.

[[Page 55421]]

at 8; see also Tr. 997 (testimony of Respondent's former Vice-President 
that because it was a tertiary supplier, demand ``is very elastic'' and 
that ``it was very hard to pinpoint a demand from a customer who bought 
from you very infrequently'').
    Respondent is the holder of DEA Certificate of Registration Number 
RD0277409, pursuant to which it is authorized to distribute controlled 
substances in schedules II through V, at the registered location of 
11930 Kemper Springs, Cincinnati, Ohio. GX 1. While this registration 
was due to expire on January 31, 2014, on December 10, 2013, Respondent 
filed a timely renewal application. 21 CFR 1301.36(i). Accordingly, 
Respondent's registration has remained in effect pending this Decision 
and Final Order. 5 U.S.C. 558(c); 21 CFR 1301.36(i).

DEA Guidance to Distributors on Reporting Suspicious Orders and 
Maintaining Effective Controls Against Diversion

    Prior to the events at issue here, the Deputy Assistant 
Administrator, Office of Diversion Control, wrote two letters which 
were sent to all registered distributors including Respondent. GXs 3 & 
4. The letters discussed the requirements imposed by 21 CFR 1301.74 for 
reporting suspicious orders and the scope of a registrant's obligation 
``to maintain effective controls against the diversion of controlled 
substances into other than legitimate medical, scientific, and 
industrial channels.'' GX 3, at 2. The first letter, which was dated 
September 27, 2006, set forth the text of 21 CFR 1301.74(b):

    The registrant shall design and operate a system to disclose to 
the registrant suspicious orders of controlled substances. The 
registrant shall inform the Field Division Office of the 
Administration in his area of suspicious orders when discovered by 
the registrant. Suspicious orders include orders of unusual size, 
orders deviating substantially from a normal pattern, and orders of 
unusual frequency.

Id. (quoting 21 CFR 1301.74(b)). Continuing, the letter noted that ``in 
addition to reporting all suspicious orders, a distributor has a 
statutory responsibility to exercise due diligence to avoid filling 
suspicious orders that might be diverted into other than legitimate . . 
. channels.'' Id. The letter then explained that ``a distributor may 
not simply rely on the fact that the person placing the suspicious 
order is a DEA registrant and turn a blind eye to the suspicious 
circumstances'' and that a ``distributor should exercise due care in 
confirming the legitimacy of all orders prior to filling.'' Id.
    The letter also set forth various characteristics found by the 
Agency to be present in pharmacies engaged in diverting controlled 
substances. These included, inter alia, ``[o]rdering excessive 
quantities of a limited variety of controlled substances . . . while 
ordering few, if any, other drugs,'' and ordering the controlled drugs 
``in quantities disproportionate to the quantity of non-controlled 
medications ordered.'' Id. at 3.
    The letter also provided a list of suggested questions for 
distributors to ask in ``determin[ing] whether a suspicious order is 
indicative of diversion of controlled substances.'' Id. While most of 
these questions focused on whether a pharmacy was engaged in the 
unlawful distribution of controlled substances through internet schemes 
in which physicians prescribed drugs to patients with whom they had not 
established a legitimate doctor-patient relationship, some of the 
questions were applicable to all pharmacies. These included: (1) 
``[w]hat percentage of the pharmacy's business does dispensing 
controlled substances constitute?'' (2) ``[a]re one or more 
practitioners writing a disproportionate share of the prescriptions for 
controlled substances being filled by the pharmacy?'' and (3) ``[d]oes 
the pharmacy charge reasonable prices for controlled substances?'' Id.
    The letter then explained that ``[t]these questions [were] not all-
inclusive'' and that ``the answer to any of the[ ] questions'' would 
not ``necessarily determine whether a suspicious order is indicative of 
diversion.'' Id. Finally, the letter concluded by advising that 
``[d]istributors should consider the totality of the circumstances when 
evaluating an order for controlled substances.''

Id.
    On December 27, 2007, the Deputy Assistant Administrator sent a 
second letter to all registered distributors including Respondent, the 
purpose of which was ``to reiterate the responsibilities of controlled 
substance manufacturers and distributors to inform DEA of suspicious 
orders in accordance with 21 CFR 1301.74(b).'' GX 4, at 1.
    After reciting the regulatory text that ``suspicious orders include 
orders of an unusual size, orders deviating substantially from a normal 
pattern, and orders of an unusual frequency,'' the letter explained 
that ``[t]hese criteria are disjunctive and are not all inclusive.'' 
Id. (quoting 21 CFR 1301.74(b)). Continuing, the letter explained that:

    If an order deviates substantially from a normal pattern, the 
size of the order does not matter and the order should be reported 
as suspicious. Likewise, a registrant need not wait for a ``normal 
pattern'' to develop over time before determining where a particular 
order is suspicious. The size of an order alone, whether or not it 
deviates from a normal pattern, is enough to trigger the 
registrant's responsibility to report the order as suspicious. The 
determination of whether an order is suspicious depends not only on 
the ordering patterns of a particular customer, but also on the 
patterns of the registrant's customer base and the patterns 
throughout the relevant segment of the regulated industry.

Id.
    The letter further explained that a registrant's ``responsibility 
does not end merely with the filing of a suspicious order report'' and 
that a ``[r]egistrant[] must conduct an independent analysis of 
suspicious orders prior to completing a sale to determine whether the 
controlled substances are likely to be diverted from legitimate 
channels.'' Id. Continuing, the letter warned that ``[r]eporting an 
order as suspicious will not absolve the registrant of responsibility 
if the registrant knew, or should have known, that the controlled 
substances were being diverted.'' Id. The letter thus advised that a 
registrant which ``routinely report[s] suspicious orders, yet fill[s] 
these orders without first determining that [the] order[s] [are] not 
being diverted . . . may be failing to maintain effective controls 
against diversion'' and engaging in acts which are ``inconsistent with 
the public interest.'' Id. at 2.

The Previous Agency Proceeding Against Respondent

    On October 17, 2008, the Deputy Assistant Administrator, Office of 
Diversion Control, issued an Order to Show Cause to Respondent alleging 
that it had ``failed to maintain effective controls against diversion 
of particular controlled substances'' in that it ``distributed large 
amounts of hydrocodone,'' then a schedule III narcotic,\6\ ``to 
customers it knew, or should have known, were diverting the [drug] into 
other than legitimate medical, scientific and industrial channels.'' GX 
5, at 1. The Order further alleged that Respondent ``distributed 
extraordinarily large amounts of hydrocodone to'' two pharmacies, which 
were ``rogue Internet pharmacies that filled prescriptions that were 
not issued for a legitimate medical purpose

[[Page 55422]]

in the usual course of professional practice.'' Id. The Government 
alleged that Respondent's sales to the two pharmacies ``were 
consistently high compared to [its] sales of hydrocodone to other 
customers,'' with one of the pharmacy's purchases ``increase[ing] 
dramatically'' to a peak of more than 1.1 million dosage units in a 
single month, and the other pharmacy's purchases increasing from 30,000 
to more than 156,000 dosage units in one month. Id. at 2. The 
Government also alleged that ``based upon the amounts and patterns of 
the hydrocodone orders and because DEA made [Respondent] aware of 
illegal Internet activity just prior to the unusual increases in 
distributions of hydrocodone to these customers,'' Respondent ``knew or 
should have known'' that the pharmacies ``were engaged in illegal 
activity'' and yet it ``failed to report [their] orders . . . as 
`suspicious,' as required by'' 21 CFR 1301.74(b). Id.
---------------------------------------------------------------------------

    \6\ Combination hydrocodone products have since been placed into 
schedule II of the CSA. See Rescheduling of Combination Hydrocodone 
Products From Schedule III to Schedule II, 79 FR 11037 (2014).
---------------------------------------------------------------------------

    The Government further alleged that Respondent distributed 
hydrocodone to two other pharmacies, with common ownership, 
notwithstanding that it had obtained information ``that clearly 
indicated that these pharmacies were operating as . . . rogue Internet 
pharmacies . . . and failed to report such orders as suspicious.'' Id. 
Finally, the Government alleged that ``[t]hroughout 2007 and 2008, 
[Respondent] . . . continued to fill orders for controlled substances 
from rogue Internet pharmacies and . . . failed to file suspicious 
order reports on such orders, in circumstances in which [it] knew or 
should have known that the pharmacies were operating illegally.'' Id.
    On April 1, 2009, the Government and Respondent resolved the 
allegations by entering a settlement and release agreement, as well as 
an Administrative Memorandum of Agreement (MOA). GX 6. While Respondent 
was not required to admit to any of the allegations, it agreed to pay 
the Government the amount of $500,000 to settle ``claims or potential 
claims for civil penalties . . . for failing to report suspicious 
orders of controlled substances'' in violation of 21 U.S.C. Sec.  
842(c). Id. at 2, 4.
    Respondent also ``agree[d] to maintain a compliance program 
designed to detect and prevent diversion of controlled substances as 
required under the CSA and applicable regulations.'' Id. at 2. The 
program was to ``include procedures to review orders for controlled 
substances,'' and further provided that orders ``exceed[ing] 
established thresholds and meet[ing] other criteria as determined by 
[Respondent would] be reviewed by [an] employee trained to detect 
suspicious orders for the purposes of determining'' either that the 
``order[] should not be filled and reported to . . . DEA'' or that 
order was ``not likely to be diverted into other than legitimate 
medical, scientific or industrial channels.'' Id. Respondent further 
agreed that these obligations ``do not fulfill the totality of its 
obligations to maintain effective controls against the diversion of 
controlled substances or to detect and report to DEA suspicious orders 
for controlled substances.'' Id.\7\
---------------------------------------------------------------------------

    \7\ Respondent also agreed that it would review its 
distributions of oxycodone, hydrocodone, alprazolam, and phentermine 
to its retail pharmacy and physician customers for the 18-month 
period prior to the signing of the MOA and identify those current 
customers which ``exceeded the thresholds or met other criteria 
established in its compliance program on the date of such review.'' 
GX 6, at 3. Respondent agreed that ``[t]o the extent it has not 
otherwise done so, [it] shall conduct an investigation for each 
customer where such review reveals purchasing patterns substantially 
deviating from the normal purchasing patterns observed . . . for 
that customer, and take appropriate action as required by this 
Agreement, DEA regulations and other procedures established under 
Masters' compliance program.'' Id.
---------------------------------------------------------------------------

    Pursuant to the MOA, DEA agreed to ``conduct a review of the 
functionality of [Respondent's] diversion compliance program at [its] 
distribution center,'' including a ``review [of] the investigatory 
files maintained by [it] of the customers serviced by the distribution 
center.'' Id. at 4-5. DEA also agreed to ``conduct an exit interview 
with [Respondent's] representatives to provide DEA's preliminary 
conclusions regarding the Compliance Review.'' Id.
    The MOA further provided that that review would be ``deemed 
satisfactory unless DEA determine[d] that the facility'' did not 
``maintain effective controls against diversion,'' ``failed to detect 
and report . . . suspicious orders . . . after April 1, 2009,'' or 
``failed to meaningfully investigate new or existing customers 
regarding the customer's legitimate need to order or purchase 
controlled substances.'' Id. Moreover, the MOA provided that ``[t]he 
Compliance Review shall be deemed `not satisfactory' if DEA provides 
written notice with specificity to [Respondent] on or before 220 days 
from the Effective Date of [the MOA], stating that [Respondent had] 
failed to meet any of the requirements,'' apparently pertaining to 
maintaining effective controls against diversion, failing to detect and 
report suspicious orders, and failing to meaningfully investigate its 
customers.\8\ Id. However, DEA also agreed that it would not ``find the 
Compliance Review `not satisfactory' unless the failure(s) [we]re 
sufficient to provide . . . a factual and legal basis for issuing an 
Order to Show Cause under 21 U.S.C. Sec.  824(a) against the inspected 
facility.'' Id. Moreover, the MOA provided that ``[a] finding of 
`satisfactory' does not otherwise express DEA's approval of Master's 
compliance program.'' Id.
---------------------------------------------------------------------------

    \8\ The MOA specifically referred to ``the requirements in 
either subsections II(2)(d)(i),(ii), or (iii) of this Agreement.'' 
GX 6, at 5. The provisions this sentence references are simply 
clauses within a single sentence and are not separate subsections.
---------------------------------------------------------------------------

    Finally, DEA agreed to release Respondent from administrative 
claims ``within [its] enforcement authority under 21 U.S.C. 823, 824 
and 842, based on the Covered Conduct,'' as well as ``the conduct 
alleged in [the first] Order to Show Cause.'' Id. at 6. However, the 
MOA further provided that ``[n]otwithstanding the releases by DEA 
contained in this Paragraph, DEA reserved the right to seek to admit 
evidence of the Covered Conduct for proper evidentiary purposes in any 
other administrative proceeding against the Released Parties (i.e., 
Respondent) for non-covered conduct.'' Id.
    On August 17, 2009, two DEA Diversion Investigators (DIs) went to 
Respondent's Kemper Springs location to conduct the compliance review 
and provide training to Respondent regarding its obligations under the 
Controlled Substances Act. Tr. 90, 92-93. Respondent's attendees 
included Dennis Smith, CEO; Wayne Corona, then Vice-President; Matt 
Harmon, then Compliance Manager; Jennifer Seiple, Vice-President of 
Compliance; and Eric Schulze, Compliance Clerk.
    As part of the review, one of the DIs reviewed the CSA's 
requirements for inventories; records, including the use of schedule II 
order forms; and reports, including the regulation governing the 
reporting of suspicious orders. GX 11. The other DI, who had queried 
DEA's Automation of Reports and Consolidated Orders System 
(hereinafter, ARCOS), a database used to track the acquisition and 
distribution of various controlled substances including, inter alia, 
all schedule II drugs and schedule III narcotics, obtained data of 
Respondent's distributions between January 2007 and June 2009 and 
created several charts, which he presented to Respondent's 
representatives. GX 48A. According to the DI, he intended to show 
Respondent that oxycodone (a schedule II narcotic drug) and hydrocodone 
(then a schedule III narcotic drug when combined typically with 
acetaminophen but now a schedule II narcotic drug) comprised the 
majority of the controlled substances it distributed during this 
period; that the majority of the oxycodone and hydrocodone it 
distributed was in ``the

[[Page 55423]]

most commonly abused dosage strengths''; and that the majority of the 
oxycodone it sold was distributed to its customers in Florida, which he 
characterized as ``the epicenter of the oxycodone epidemic.'' \9\ GX 
48A, at 3. The DI also testified that he presented Respondent with data 
and a chart showing its distributions of oxycodone to several of the 
pharmacies during the period of January through June 2009, including 
Morrison's RX (672,600 dosage units), Lam's Pharmacy (522,500), 
Englewood Specialty Pharmacy (262,700), and The Drug Shoppe (242,700). 
Id. at 5; GX 12, at 23. The DI testified that his intent in doing so 
``was to alert [Respondent] to potentially problematic trends that [he] 
perceived based upon [its] ARCOS reporting.'' GX 48A, at 5-6.\10\
---------------------------------------------------------------------------

    \9\ Other testimony described the extent of the oxycodone 
epidemic in Florida during this period, including that between 2005 
and 2010, the State experienced a 345 percent increase in narcotic-
related overdose deaths, with 11 people dying per day in 2010, as 
well as an increase from 250 to 1,400 in the number of newborns who 
were addicted to oxycodone per year. Tr. 28.
     The State eventually enacted legislation requiring that a 
physician and clinic ``primarily engaged in the treatment of pain by 
prescribing or dispensing controlled substance[s]'' register as a 
pain management clinic with the Florida Department of Health and 
limited the authority of dispensing physicians in such clinics to 
dispensing a 72-hour supply of narcotics to those patients who paid 
for the drugs ``by cash, check, or credit card.'' Fla. Stat. 
Sec. Sec.  458.3265(1)(a) (2010), 465.0276(1)(b) (2010). The 
following year, the State enacted legislation which barred 
physicians from dispensing schedule II and III controlled substances 
except in even more limited circumstances. Fla. Stat. Sec.  465.0276 
(2011); see also Tr. 31. Based on the extensive abuse of oxycodone 
in Florida, in July 2011 the State's Surgeon General declared a 
public health emergency. Tr. 30-31; GX 47.
    \10\ The DI further testified that he specifically identified 
Lam's as a customer they ``[s]hould be `looking at.''' GX 48A, at 6.
---------------------------------------------------------------------------

    Consistent with the DI's testimony, a former employee of Respondent 
who attended the briefing testified that the DI very clearly expressed 
his concerns about Respondent's continued sales of oxycodone 30 mg, 
which he explained was the most abused form of oxycodone, to 
Morrison's, Englewood, The Drug Shoppe, and Lam's. Tr. 1155. The former 
employee further testified that as the DI reviewed Respondent's files 
for these pharmacies and looked at their sales volume, he would turn 
and look at Ms. Seiple (the Compliance Director) and ask: ``You're not 
selling to this guy, are you, Jennifer?'' Id. at 1156.\11\
---------------------------------------------------------------------------

    \11\ I have considered Respondent's contention that the ALJ 
``incorrectly found that DEA very clearly expressed concerns about'' 
these four pharmacies during the Compliance Review. Resp. 
Exceptions, at 19. Having reviewed the record, I reject the 
contention.
---------------------------------------------------------------------------

    Also, at the hearing, Mr. Corona admitted that oxycodone 30 mg 
``was a highly abused substance'' and that it was ``being obtained 
surreptitiously and unlawfully down in Florida.'' Id. at 1071-72. Mr. 
Corona acknowledged that Respondent and its CEO were ``aware of the 
`oxycodone epidemic' stemming from Florida'' and that ``[t]his was 
common knowledge at [Respondent] as well as in the pharmaceutical 
industry in general.'' GX 51B, at 9 ] 31. He further testified that 
Florida was ``the `wild west' and . . . a `free for all' when it came 
to sales and dispensing of oxycodone.'' Id.
    The DI also testified that a document entitled ``Suggested 
Questions a Distributor should ask prior to shipping controlled 
substances'' was presented to Respondent at the review. Tr. 223-24; see 
also RX 13. One of the suggested questions was: ``What is the 
pharmacy's ratio of controlled v. non-controlled orders?'' RX 13, at 1. 
Next to it is the handwritten notation: ``RATIO C20--NC 80.'' Id. 
However, on cross-examination, the DI testified that nothing in the 
``training materials,'' i.e., the PowerPoint presentation, see GX 11, 
addressed how Respondent should evaluate the ratios of controlled to 
non-controlled drugs ordered by a pharmacy, Tr.114, and he did not 
recall what specific discussions he had with Respondent's 
representatives regarding the ratio of controlled to non-controlled 
substances. Id. at 182. He also acknowledged that he did not provide 
training ``concerning the proper use of drug utilization reports,'' id. 
at 114, and that he was not asserting that Respondent was using the 
utilization reports in a manner inconsistent with its written policies 
and procedures. Id. at 132. Nor did he tell Respondent that it was 
analyzing the information contained in the customer files incorrectly, 
id. at 115, including the URs which were in the due diligence files 
Respondent kept for Morrison's, Englewood, The Drug Shoppe, and Lam's. 
Id. at 141.
    However, recalling the briefing provided by DEA, Mr. Corona 
testified that:

    DEA provided information regarding specific questions to ask 
Masters' customers on due diligence questionnaires and during site 
visits. These questions were designed to gather information to allow 
Masters to identify ``red flags'' that may indicate that a 
particular customer was involved in illegitimate dispensing of 
controlled substances. In particular, DEA advised us to focus on 
whether a customer had a high percentage of cash for controlled 
substance prescriptions (as compared to third-party insurance 
payment), refused to accept insurance for the payment of controlled 
substance prescriptions, and/or dispensed a high percentage of 
controlled substances as compared to non-controlled substances.

GX 51B, at 4 ] 12.
    During the review, Respondent also made a presentation to the DIs 
regarding its controlled drug handling policies and procedures. RX 12. 
As part of the presentation, Respondent stated that all new controlled 
substance customers were required to provide ``a valid DEA registration 
number,'' which it verified using the National Technical Information 
Service database. Id. at 11-12. Also, new customers were required to 
``[c]omplete a survey designed to screen customers for inappropriate 
business activity,'' which included questions as to how many 
prescriptions the customer filled per day and how many were for 
controlled substances, whether the pharmacy did mail order or internet 
business, and whether the pharmacy filled prescriptions for out-of-area 
or out-of-state doctors or patients. Id. at 15. Respondent further 
represented that it reviewed the survey responses to determine if the 
customer was engaged in ``inappropriate business practices'' ``[]prior 
to shipping even one controlled drug,'' and that if the responses were 
``not indicative of inappropriate practice,'' it would approve the 
customer to purchase controlled substances. Id. at 16.
    As for its existing customers, Respondent stated that beginning in 
October 2008, it had conducted more than 5,800 surveys and that ``[a]ll 
customers eligible to purchase controlled drugs . . . ha[d] undergone 
[its] due diligence process and been approved by [the] Compliance 
Department.'' Id. at 19. Respondent further represented that since 
January 1, 2008, it had conducted 346 site visits of customers located 
in California, Florida, Kentucky, Nevada, Ohio, Tennessee, and West 
Virginia. Id. at 20.
    Respondent also briefed the DIs regarding its Suspicious Order 
Monitoring System (hereinafter, SOMS). More specifically, Respondent 
explained that every order containing at least one controlled substance 
was tracked by calendar month and that any time a customer placed a new 
order that would result in the customer receiving more controlled drugs 
(by drug family) in the past 30 days than its highest monthly total in 
any of the previous six calendar months, the order was held for review 
and could not be shipped until it was released by the Compliance 
Department.\12\ Id. at 25-29. Respondent

[[Page 55424]]

also stated that the SOMS was designed to place holds based on a change 
in a customer's order patterns. Id. at 27.
---------------------------------------------------------------------------

    \12\ Under the SOMS, Respondent assigned a Controlled Substance 
Limit (CSL) for each drug family ordered by a customer. According to 
a document describing the SOMS, upon the completion of the initial 
due diligence, the Compliance Department would assign a default 
monthly limit for each control [sic] drug group based on the 
``information derived from the initial due diligence.'' GX 35, at 
15. This limit would set the number of doses that a customer could 
receive at a particular registered location ``in any given 30 day 
period,'' but could ``be edited for a period of six months after the 
first purchase of each control [sic] [drug] group.'' Id.
    However, according to its policies and procedures, Respondent 
did not require that new controlled substance customers provide a 
utilization report showing their actual dispensings of prescription 
products prior to setting the initial monthly limit. Rather, under 
its policies and procedures, obtaining a UR was a discretionary act 
even when Respondent deemed it necessary to conduct additional due 
diligence on a new customer. RX 78, at 30-31.
    According to the testimony of a former compliance department 
employee, based on the number of prescriptions a customer reported 
that it filled on a daily basis (which was typically only an 
estimate), Respondent would place the customer in one of three tiers 
and assign the initial monthly limit of dosage units for each 
controlled substance family (e.g., oxycodone). Tr. 1380-82. While 
there is testimony to the effect that the tiers were set at either 
``5, 10, or 15'' thousand dosage units, it is unclear whether this 
applied to each controlled substance family. Tr. 627 (testimony of 
DI). Of further note, there is no evidence as to how Respondent 
determined the number of dosage units for each controlled substance 
family and tier.
    According to the materials Respondent provided (i.e., the SOMS 
Appendix), ``[a]fter six months of full history for a control [sic] 
[drug] group, the customer invoice history will be used to determine 
the monthly limit for each control [sic] [drug] group,'' with an 
``update . . . occur[ing] on the first of every month.'' RX 78, at 
59-60. However, ``[t]he highest monthly total [including product 
that was returned] from the preceding six months will be used as the 
new Monthly Limit for [a] control [sic] [drug] group.'' Id. at 60.
    As for the determination of whether an order ``is invalid'' 
because of its ``size,'' Respondent represented that this is made by 
adding ``the total number of doses invoiced in the past 30 days [on 
a rolling basis] plus the total doses on open orders plus the number 
of doses on the received order[s] and compar[ing] it to the monthly 
limit.'' Id. According to Respondent's former Vice President, even 
if an order placed a customer one pill over its CSL for a controlled 
drug group, the order would be placed on hold and trigger a review. 
Tr. 1001.
---------------------------------------------------------------------------

    Respondent represented that every controlled substance order 
``go[es] through SOMS even before our system checks to see if we have 
the ordered items in stock,'' and that ``[i]f the order and the account 
history meets [sic] or exceeds [sic] the criteria set in [the] SOMS, 
the order is held for review,'' which involved the Compliance Staff 
conducting ``additional due diligence'' and determining whether the 
order could be shipped. Id. at 30. Respondent further represented that 
if its Compliance Staff ``reject[ed] the order,'' it was ``considered 
`suspicious' '' and would be ``reported to . . . DEA'' and the 
customer's controlled substance ordering privileges would be 
``suspended indefinitely.'' Id.
    Finally, Respondent represented that ``[d]ocumentation on all 
orders held for review and their dispositions are permanently 
retained.'' Id. (emphasis in original). See also GX 51B, at 6 ] 19 
(testimony of Wayne Corona) (``The compliance department would contact 
the customer, advise that the order was held and request a reason why 
the order exceeded SOMS parameters. The reason would be documented in 
the due diligence files, specifically in the `Memos for Record' (MFRs). 
It may also have been electronically documented in the `Ship to Memos' 
which were also part of the due diligence file.'') (emphasis added)).
    Of further note, during the briefing, Respondent provided the DIs 
with a six-page Appendix which explained the operations of the SOMS. RX 
78, at 59-64. On the issue of the documentation of those orders that 
were held for review, the Appendix stated:

    All orders have a full audit trail as related to SOMS. Each 
order that is processed through the system will show the status of 
the three parts of the SOMS system along with the customer's current 
limits and the results of the limits as related to this order. The 
ultimate status, accept or reject, will be shown along with the 
date/time and user associated with the action. A reason code and 
notes will also be provided as additional detail supporting the 
decision.

Id. at 64.
    In addition to the SOMS Appendix, Respondent provided the DIs with 
a copy of its compliance manual, which included its policies and 
procedures for evaluating its controlled substance customers and their 
controlled substance orders; its policy on site visits (including its 
site visit and due diligence survey forms); and the operation of the 
SOMS. GX 48A, at 8; see also RX 78. Because the written policy and 
procedures provide additional detail beyond that which was discussed in 
the slides used in Respondent's PowerPoint briefing, relevant 
provisions are discussed below.
    Respondent's Policy 6.1 set forth the requirements to purchase 
controlled drugs. RX 78, at 30. These requirements included that any 
customer ``possess a valid, unexpired DEA registration'' in the 
appropriate drug schedules; that it provide its ``registration number 
and/or a copy of the registration''; and that Respondent would validate 
the customer's registration though the NTIS (National Technical 
Information Service) database. Id.
    The Policy also required Respondent to ``perform sufficient due 
diligence on all customers in order to prevent the diversion of 
controlled drugs.'' Id. This included a survey; the authentication of 
the licenses of the facility, pharmacist-in-charge, and practitioners; 
a check of publicly available disciplinary records for recent 
disciplinary actions; and review by a compliance manager. Id.
    The Policy further provided that ``[a]dditional due diligence shall 
be required of any customer when any of the following issues are 
indicated'' to include that: (1) There were ``[s]ignificant, recent, 
and/or relevant disciplinary actions relating to the handling of 
controlled drugs''; (2) a customer was distributing controlled 
substances over the internet or by mail order; (3) a customer was 
``diverting controlled drugs through any other means''; (4) a 
``customer place[d] a potentially suspicious order''; and (5) the 
compliance manager conducting the review required more information. Id. 
at 30-31. The Policy then stated that the additional due diligence 
could ``include any or all of the following steps, as determined by the 
compliance manager'': (1) Obtaining ``[d]rug [u]tilization [r]ecords''; 
(2) conducting a site visit; (3) inquiring of law enforcement agencies; 
(4) checking with ``common carriers to determine if the [customer] is 
using their services; and (5) ``[a]cquiring a commercial credit report 
. . . to verify the survey information provided by the customer.'' Id. 
at 31.
    Respondent's Policy 6.2 sets forth its requirements and procedures 
for monitoring and reporting suspicious orders. Id. at 32. According to 
Respondent, the SOMS did four things: (1) It ``[t]racks each customer's 
purchase history for controlled drugs''; (2) it ``[r]eviews every order 
for controlled drugs . . . prior to shipment''; (3) it ``[h]olds all 
orders for controlled drugs that meet or exceed the criteria set forth 
in 21 CFR 1301.74(b)'' (the suspicious order reporting regulation); and 
(4) it ``[r]equires each order to be individually reviewed prior to 
shipment.'' Id. The Policy then set forth Respondent's procedures for 
those orders that were placed on hold by the SOMS. Id. These procedures 
required that ``[a] compliance staff member call[] the customer and 
request[]'' both: (1) ``[a]n explanation for the order,'' which was to 
be ``independently verified''; and (2) ``[a] current utilization 
report, listing all of the pharmaceuticals'' (including both controlled 
and non-controlled) dispensed by the pharmacy ``in the most recent 
calendar month.'' Id. The procedures also required that ``[t]he 
customer's entire file'' be reviewed, including its ``initial survey,'' 
its ``order

[[Page 55425]]

history with'' Respondent, and ``[t]he site visits report(s),'' if 
available.'' Id.
    According to the Policy, orders held for review would be released 
and filled when the order was found to be ``consistent with the 
customer's utilization report,'' and the review of ``the customer's 
file, including [its] survey responses and site visits'' was found to 
be ``consistent with legitimate business practices.'' Id. The Policy 
further directed that a held order would not be filled upon a finding 
that the order was inconsistent with the utilization report, the file 
review ``indicate[d] that the customer may be engaged in inappropriate 
business practices,'' or ``[t]he customer refuses to provide . . . the 
information necessary to complete its evaluation.'' Id. at 32-33. 
Moreover, the Policy directed that ``[a]ll orders . . . held for review 
that [Respondent did] not fill for [these] reasons . . . shall be 
considered `Suspicious Orders' according to 21 CFR 1301.74(b) and 
reported to'' DEA. Id. at 33. Finally, upon the determination that an 
order was suspicious, Respondent's policy required that ``the 
customer's ordering privileges for controlled drugs . . . be suspended 
indefinitely.'' Id. \13\
---------------------------------------------------------------------------

    \13\ See also GX 51B, at 6 ] 19 (declaration of Wayne Corona) 
(``The compliance department would contact the customer, advise that 
the order was held and request a reason why the order exceeded SOMS 
parameters. The reason would be documented in the due diligence 
files. . . . The compliance department was supposed to independently 
verify the reason given by the customer. If the reason was valid, 
the order would be released. If the reason could not be validated, 
it was supposed to be reported as suspicious.'').
---------------------------------------------------------------------------

    Respondent's Policy and Procedures included its Policy 6.5, which 
applied to site visits. Id. at 37. The Policy stated that it was 
Respondent's policy to conduct site visits for ``all'' customers 
purchasing large quantities of controlled substances, as well as when 
its Compliance Department determined that ``additional due diligence 
[was] necessary prior to'' filling a controlled substance order. Id. 
The purpose of the site visits was to verify the customer's location; 
its ``trade class'' (whether it was a closed door, wholesale, or 
community pharmacy); the representations it made during ``the due 
diligence process,'' such as its proximity to health care providers; 
and finally, to ``look[] for indications of inappropriate business 
activity.'' Id.
    The Policy required that those conducting the site visits ``take 
comprehensive notes'' and complete a ``Pharmacy Evaluation Form.'' \14\ 
Id. It also instructed that photographs should be taken of the 
pharmacy's exterior, as well as ``any other feature in or around the 
pharmacy'' that would ``be helpful in making compliance decisions about 
the customer.'' Id. Finally, the Policy directed that if the inspector 
``identifie[d] anything about the pharmacy or its staff that indicated 
. . . that the pharmacy is currently engaged in inappropriate business 
activity,'' this was to be reported to the Compliance Department ``as 
soon as possible after the visit.'' Id. (emphasis in original).
---------------------------------------------------------------------------

    \14\ A copy of the Pharmacy Evaluation Form (which was revised 
on May 27, 2009) and the Due Diligence Survey--For Pharmacies (which 
was revised on May 14, 2009) are found at RX 78, at 51-57. The 
Pharmacy Evaluation Form is six pages long, with questions regarding 
ownership information, years in business, the licenses of the 
pharmacy, its pharmacist-in-charge, its pharmacy staff, and the 
nature of its practice. As for the latter section, the pharmacy was 
required to list all of the pharmaceutical distributors it had 
purchased from in the last 24 months; answer questions regarding 
``the average number of prescriptions filled per day,'' ``[w]hat 
percentage are ANY CONTROLLED DRUG (CII-V),'' ``[w]hat percentage 
are ANY SCHEDULE II DRUG (CII)''; and list the percentage of 
prescription revenue from private insurance, Medicare/Medicaid, 
cash, and other sources. Id. at 51-55. The pharmacy was also 
required to disclose if it had a Web site or was affiliated with any 
Web sites and, if either question was answered in the affirmative, 
list the URL(s). Id. at 55. The pharmacy was further required to 
disclose if it ``fill[ed] prescriptions for practitioners in the 
primary business of pain management,'' and if so, ``list all such 
practitioners and their DEA numbers.'' Id. Finally, the form 
included a section titled as ``Inspector's Notes.'' Id. at 55-56.
     As for the Due Diligence Survey, it asked similar questions, 
including whether the pharmacy had a Web site; whether it did mail 
order; if it had a primary wholesaler and, if so, the wholesaler's 
name; the daily script average and daily script average of schedule 
II drugs; the percentage of scripts that were for controlled drugs; 
the percentage of scripts that were for schedule IIs; and whether 
the pharmacy accepted insurance and Medicare/Medicaid, and, if so, 
the percentage paid by insurance. Id. at 57. The form also asked 
questions regarding what the pharmacy did to prevent doctor 
shopping; how the pharmacy ensured that doctors were ``exercising 
proper standards of care for their patients''; if the pharmacy had 
``ever refused to fill a prescription,'' and if so, what were ``the 
most common reasons''; whether it had ``ever decided to permanently 
stop filling'' prescriptions written by a physician, and if so, 
``the reason for doing so''; whether it filled prescriptions written 
by out-of-area or out-of-state doctors; whether it filled 
prescriptions for out-of-area or out-of-state patients; and whether 
it filled prescriptions ``via the internet.'' Id.
---------------------------------------------------------------------------

    As found above, the MOA required that DEA ``conduct an exit 
interview . . . to provide [its] preliminary conclusions regarding the 
Compliance Review.'' GX 6, at 5. The DI did not, however, do a formal 
exit interview. GX 48A, at 8. Indeed, the DI testified that because the 
new policies had been implemented on August 14, 2009, only four days 
before the Compliance Review, there was not enough time to determine if 
the policies were being properly implemented. Tr. 230. However, the DI 
testified that at the conclusion of the review, he ``explained to 
[Respondent] that a review of all the information and material provided 
indicated that Masters ha[d] progressively engaged in actions to 
implement policies and procedures to promote an effective system to 
detect and prevent diversion of controlled substances.'' GX 48A, at 8. 
The DI further explained that he ``based this conclusion on the written 
policies and procedures provided . . . by [Respondent], and [his] 
assessment that, if properly implemented, these policies and procedures 
could promote an effective system to detect and prevent diversion of 
controlled substances.'' Id. Also, although the MOA stated that if DEA 
found the Compliance Review to be ``not satisfactory,'' it was to 
``provide[ ] written notice with specificity to [Respondent] on or 
before 220 days from [the MOA's] [e]ffective [d]ate,'' GX 6, at 5; DEA 
did not provide any such notice. Tr. 120-25.
    On August 18, 2009, the same day that the review concluded, Matt 
Harmon, Respondent's Compliance Manager, prepared a memorandum which he 
provided to both Wayne Corona (Vice-President) and Dennis Smith (owner 
and CEO). GX 38; see also Tr. 1161-62. Therein, Harmon proposed various 
steps which Respondent should take in response to the DEA review. 
Harmon proposed that Respondent use the pharmacies' utilization reports 
to ``[i]dentify pharmacies'' whose dispensings of controlled drugs and 
other drugs of concern (tramadol and carisoprodol) comprised ``50% or 
more of their'' dispensings and if so, then determine if ``over half of 
their purchases in each drug family [were of] either the highest 
strength or otherwise frequently diverted drug products.'' Id. Harmon 
then listed five products: ``oxycodone 30 mg,'' ``methadone 10 mg,'' 
``hydrocodone 10 mg,'' ``alprazolam 2 mg,'' and ``codeine syrup,'' both 
``with or without promethazine.'' Id. at 1. Harmon then proposed that 
if both conditions were present with respect to a pharmacy, Respondent 
``need[ed] to suspend controlled sales to'' the pharmacy until it 
concluded an investigation. Harmon also explained that ``[w]e should 
assume that every pharmacy meeting the above criteria is engaged in 
inappropriate business activity until proven otherwise.'' Id.
    Harmon further proposed that Respondent's investigation of such 
pharmacies focus on four questions: (1) Was there ``a strong 
independently verifiable, legitimate reason for this pattern?''; (2) 
was the pharmacy ``selling a full range of non-controlled 
pharmaceuticals?''; (3) were ``the

[[Page 55426]]

majority of the[] controlled drug prescriptions paid for with 
insurance?''; and (4) did the pharmacy ``sell front-store items?'' 
Harmon added that those customers who met ``only some of these criteria 
should be subjected to additional due diligence prior to any sale.'' 
Id.

The Government's Evidence of Respondent's Sales of Oxycodone During the 
Period of April 1, 2009 Through March 31, 2011 to the Seven Florida 
Pharmacies

    The main focus of the Government's case was Respondent's sales of 
oxycodone to seven Florida-based pharmacies during the height of the 
State's oxycodone crisis. Based on data submitted by Respondent through 
ARCOS, the Government prepared a spreadsheet of the purchases of 
oxycodone 15 and 30 mg by the seven pharmacies (as well as Lam's 
Pharmacy, which was located in Las Vegas, Nevada) identified in the 
Show Cause Order during the following periods: (1) April 1, 2009 
through December 31, 2009; (2) calendar year 2010; and (3) January 
through March 2011. It also prepared spreadsheets listing the 
pharmacies' monthly purchases of both drugs from Respondent.\15\
---------------------------------------------------------------------------

    \15\ The Government also submitted two tables purporting to show 
the total number of oxycodone dosage units Respondent sold to its 
customers in each State during the years 2009 through 2012, as well 
as its average monthly sale per customer during each year. See GXs 
10B & 10L. The ALJ found the data unreliable because the first of 
these tables shows that Respondent distributed nearly 25 million 
dosages in 2009 to its Florida customers, which was approximately 67 
percent of its total oxycodone distributions, while the second of 
these tables, which was submitted as a rebuttal exhibit--after 
Respondent discredited the Government's calculation of its average 
monthly sale per customer in each State--shows that Respondent had 
sold an additional 7.6 million dosage units to its Florida customers 
and that this comprised approximately 66 percent of its total 
distributions. However, there was little change between the data in 
the two exhibits for calendar years 2010 and 2011. The 2010 data 
show that Respondent distributed 24,389,400 dosage units to its 
Florida customers (according to GX 10B) and 24,387,800 to its 
Florida customers (according to table 10L); the tables show that 
Respondent's total distributions were 37,866,700 (according to GX 
10B) and 37,859,300 (according to GX 10L). The ALJ did not address 
why this portion of the data is unreliable. Moreover, Respondent did 
not dispute that it ``distribute[d] a lot of oxycodone to the state, 
lots of it.'' Tr. 1837 (closing argument of Respondent's counsel).
    However, I agree with the ALJ that the data as to its total 
sales in Florida do not establish that Respondent failed to maintain 
effective controls against diversion. R.D. at 27 n.22, 164-67. I 
also find unpersuasive the Government's proffered comparison of 
Respondent's Florida sales with its sales to its customers in other 
States including Texas, California, and New York, which the 
Government argues were ``similarly situated'' in terms of 
demographics and the number of medical establishments. Gov. Post-
Hrng. Br. 104-06. Accordingly, I reject the allegation that the 
volume of dosage units distributed to the pharmacies alone 
establishes that Respondent ``knew or should have known'' that the 
``prescriptions were issued for other than a legitimate medical 
purpose and outside the usual course of professional practice.'' ALJ 
Ex. 1, at 3 (Order to Show Cause, at ] 5).
    I also agree with the ALJ's conclusion that the Government's 
calculations of the average monthly purchase of oxycodone by 
Respondent's customers (as reflected in both exhibits) are flawed. 
R.D. 27 n.22. As for the calculations in GX 10B, the Government 
conceded that these were erroneous because each transaction was 
treated as if it was made by a separate pharmacy, Tr. 1736, and thus 
the number of pharmacies used to calculate the average was off by a 
factor of 14 for the 2009 calculation and 24 for the 2010 
calculation. Compare GX 10B with GX 10L.
    Similarly, while the calculations in GX 10L may have been based 
on an accurate number of pharmacies, I agree with the ALJ that the 
calculations are flawed because they did not take into account that 
Respondent's customers did not necessarily purchase oxycodone each 
month and thus suffer from aggregation bias. R.D. 27 n.22; see also 
Tr. 1625-26, 1755-57. Indeed, I note that while GX 10L was submitted 
after Respondent's expert pointed out this flaw in the Government's 
initial calculations, the Government still submitted calculations 
that did not correct for aggregation bias.
---------------------------------------------------------------------------

    In December 2010, a DI with the Detroit Field Division was directed 
to conduct an investigation as to whether Respondent was complying with 
the 2009 MOA. GX 49B, at 7, ] 10. After reviewing data showing 
Respondent's distributions of various controlled substances (which 
showed that oxycodone comprised more than 60 percent of its 
distributions during 2009 and 2010, and that 44 of its top 50 oxycodone 
customers were located in Florida), on Feb 8, 2011, the DI (accompanied 
by two other DIs) went to Respondent's Kemper Springs facility to 
determine whether Respondent had ``created and implemented a system 
designed to maintain effective controls against diversion.'' Id. at 8. 
The DIs met with Wayne Corona (Respondent's President and Chief 
Operating Officer), Jennifer Seiple, and Matthew Harmon, and reviewed 
various records. Id. at 8-9.
    According to a DI, Corona stated that Respondent's ``employees were 
aware of the diversion problems with oxycodone in Florida'' but did not 
``consider the geographic locations of its Florida pharmacy 
customers.'' Id. at 9.\16\ Corona also stated that he was aware of the 
fact that DEA had suspended the registration of Harvard Drug Group, 
L.L.C., based on its distributions of oxycodone to Florida and that 
Respondent had been ``flooded with contacts from Harvard['s] customers 
inquiring about oxycodone products after'' the suspension of Harvard's 
registration. Id.
---------------------------------------------------------------------------

    \16\ Indeed, at the hearing, both Messrs. Corona and Smith 
testified that in early 2009, Smith, accompanied by another 
employee, travelled to Florida to check out the situation. Tr. 1033, 
1665. At the time, Respondent was supplying pain clinics which 
engaged in the direct dispensing of controlled substances to 
patients. On his return, Smith decided to cut off the pain clinics. 
As Corona explained:
    He [Smith] said he couldn't believe what was going on in Florida 
with respect to the pain clinics because he had seen park benches 
and bus stop benches advertising pain clinics, and he brought back a 
copy of City Beat with I forget how many pages of nothing but ads 
for pain clinics with young kids sitting around a pool in bathing 
suits with big smiles on their face [sic], and he said this was an 
issue and we're not going to participate in this anymore. So he 
effectively that day cut everybody off.
    Tr. 1074. In his testimony, Smith confirmed Corona's 
recollection of the impetus for the decision to cut off the pain 
clinics. He testified that:
    I was down there a couple of days, two or three days. We looked 
at the pain clinics. We looked at certain areas of town that some of 
the pain clinics were located in. We also got a copy of City Beat, 
which was a monthly or a weekly--one of those free catalogs you 
often see outside of restaurants--and started going through it and 
identified that towards the back there were a lot of advertisements 
for pain clinics that I thought were very unethical. It would show 
young people sitting around a pool and it named the pain clinic and 
say [sic] we dispense on site, and that really hit home hard.
    Tr. 1665-66; see also RX 104, at 19 (Smith Decl. at ] 73).
    Smith did not, however, cut off the pharmacies. According to 
Corona, this was because Smith believed that Respondent could rely 
on the pharmacies to vet the physicians who were writing the 
prescriptions. Corona then asserted that ``[w]e all knew that a 
licensed professional in the health care field would for the most 
part behave ethically and legally,'' id. at 1075, even though Smith 
testified that he had concerns about the ethics and legality of the 
conduct engaged in by pain-clinic physicians. Id. at 1665-66.
     So too, while Smith admitted that he knew that oxycodone was 
the primary drug being sought for illicit use in Florida, id. at 
1668, he asserted that he ``put a lot of thought into it, and I just 
felt that there should be segregation of duties, that the physician 
should write and the pharmacy should dispense, and that was an added 
line of due diligence on the part of the pharmacy.'' Id. at 1666. 
Apparently, the possibility that pharmacists might also act 
unethically or illegally never occurred to him, even though Smith 
was obviously aware of this possibility from his experience in 
addressing the allegations of the previous Show Cause Order that 
Respondent supplied pharmacies that were unlawfully distributing 
controlled substances via the internet.
---------------------------------------------------------------------------

    As part of the investigation, the DI served several administrative 
subpoenas on Respondent and obtained the record for 21 pharmacies 
including Tru-Valu Drugs, Inc.; The Drug Shoppe, Inc.; Morrison's RX, 
Inc.; City View Pharmacy; CIFII Corp, d/b/a Lam's Pharmacy; Englewood 
Specialty Pharmacy, Inc.; Medical Plaza Pharmacy of Plantation, L.L.C.; 
and Temple Terrace Pharmacy, d/b/a Superior Pharmacy. GX 49B, at 14; 59 
n.15; 87 n.18. The DI reviewed these files, which were maintained by 
Respondent's compliance department and contained customer 
questionnaires, pharmacy evaluations, site visit forms, Memos for 
Record (MFRs), Ship to Memos, SOMS

[[Page 55427]]

Notes, Utilization Report (URs), and other forms and emails. Id. at 16.
    According to the DI, his review showed that Respondent ``regularly 
ignored inconsistencies in information provided by controlled substance 
customers, including extremely high percentages of controlled 
substances being distributed by the pharmacy, significant percentages 
of cash sales, and other indicators of potential diversion.'' Id. at 
16-17. The DI further asserted that the documents showed that 
Respondent ``deleted or edited orders that would bring customers above 
their threshold limit'' and that it also ``routinely utilized a 
`release with reservation' or `ship with reservation' (`RWR or SWR') 
designation and thus allowed orders that [it] should have viewed as 
potentially suspicious [to] be shipped.'' Id. at 17. Finally, the DI 
alleged that Respondent ``ignored or failed to act on information it 
reviewed during on-site inspections that were significant indicators of 
potential diversion.'' Id.

The Pharmacy Specific Evidence

    Before proceeding to make findings specific to each of the Florida 
pharmacies,\17\ a discussion of the parties' exceptions which bear 
directly on the weight to be given to the pharmacy-specific evidence is 
warranted. These include the Government's exception to the ALJ's 
finding that it failed to prove that Respondent did not comply with the 
provisions of its policies and procedures which required it to contact 
the pharmacy whenever an order was held by the SOMS and obtain an 
explanation for the order, which it then independently verified, as 
well as to obtain a new UR. Gov. Exceptions, at 43-56. As for 
Respondent, it asserts that ``the ALJ assumed that all orders 
identified on the SOMS notes were held by SOMS,'' and that ``[a]s a 
result of this misinterpretation, the ALJ vastly overstated the number 
of orders held by the SOMS.'' Resp. Exceptions, at 13. Respondent also 
argues that ``the ALJ incorrectly concluded that the . . . Order to 
Show Cause was not based on `Covered Conduct' '' and that she ``failed 
to make factual findings required to protect [its] interests under 
the'' MOA. Id. at 16. Respondent further asserts that the ``ALJ should 
not have allowed evidence regarding [its] failure to review [the 
utilization reports] regardless of whether it was part of [its] 
policies and procedures.'' Id. at 19.
---------------------------------------------------------------------------

    \17\ Having reviewed the entire record, I limit my discussion of 
the pharmacy specific evidence to the Florida pharmacies.
---------------------------------------------------------------------------

The Government's Exception

    As noted above, Respondent's Policies and Procedures required that 
an order placed on compliance hold by the Suspicious Order Monitoring 
System (SOMS) be subject to additional due diligence which included: 
(1) contacting the customer to discern the reason for the deviation in 
size, pattern, or frequency; (2) independently verifying the reason 
stated by the customer; (3) obtaining a new utilization report; and (4) 
conducting a complete file review to determine if the pharmacy's order 
was consistent with legitimate business practices. As will be shown 
below, while the SOMS held numerous orders placed by the Florida 
pharmacies, in only rare instances do Respondent's records document 
that it contacted the pharmacy to obtain an explanation for the order, 
let alone that it independently verified that explanation.\18\
---------------------------------------------------------------------------

    \18\ While Policy 6.2 required Respondent to obtain a new UR 
whenever an order was held by the SOMS, it is beyond dispute that 
Respondent rarely obtained a new UR.
---------------------------------------------------------------------------

    The Government points to the frequent absence of documentation 
showing that Respondent contacted the pharmacies, obtained an 
explanation for these orders, and independently verified that 
explanation. The Government contends that the reason there is no such 
documentation is because Respondent's employees did not do it.
    The ALJ rejected the Government's contention, asserting that the 
Government acknowledged in its brief that Respondent's ``Policies and 
Procedures do not require documentation of the reasons for the release 
of a held order.'' R.D. at 171. I need not decide whether this is a 
fair reading of the Government's brief because, as found above, the ALJ 
ignored the evidence that Respondent, in its presentation to the Agency 
regarding ``The Process'' for monitoring controlled substance orders, 
represented that ``[d]ocumentation on all orders held for review and 
their dispositions are permanently retained.'' RX 12, at 30 (emphasis 
in original).
    Moreover, while the ALJ acknowledged Mr. Corona's testimony that 
documentation was the `` `lynchpin [sic] of the whole system in terms 
of explaining our behavior,' '' the ALJ then characterized his 
testimony as ``not[ing] that the reasons for exceeding SOMS would often 
be documented in [the] MFRs and Ship to Memos.'' R.D. at 171 (citing 
Tr. 1094; GX 51B at 6 ] 19) (emphasis added). Yet Mr. Corona actually 
testified that ``[t]he compliance department would contact the 
customer, advise that the order was held and request a reason why the 
order exceeded SOMS parameters. The reason would be documented in the 
due diligence files, specifically in the `Memo for Record' (MFRs). It 
may also have been electronically documented in the `Ship to Memos' 
which were also part of the due diligence file.'' GX 51B, at 6 ] 19 
(emphasis added). While the ALJ also cited Mr. Corona's oral testimony 
as support for her characterization of his testimony that the reasons 
``would often be documented,'' I reject this because it is based on a 
misreading of Mr. Corona's testimony.\19\
---------------------------------------------------------------------------

    \19\ The actual question (by Respondent's counsel), which was 
based on a hypothetical, as it is not supported by any facts in 
evidence and is not even probative on this point, and Corona's 
answer follows:
    Q. Now, if Jennifer Seiple made that phone call and the 
pharmacist said I ordered a day early because I'm going on vacation 
next week and she didn't document that on an MFR, you would trust 
her to know that that was an appropriate reason? I mean, if she 
didn't document it, that doesn't indicate to you that she was 
attempting to do anything nefarious, does it?
    A. No, it does not. What I would do is ask her under the 
assumption that she was well within her guidelines to do that and 
then ask her to please document it for future reference or go back 
and document it because documentation was the linchpin of this whole 
system in terms of explaining our behavior, especially in our 
environment.
    Tr. 1094.
---------------------------------------------------------------------------

    The ALJ also asserted that another witness (Mr. Schulze), who had 
worked in the Compliance Department, ``testified that not all research 
the Compliance Department conducted was documented in the MFRs or Ship 
to Memos, and that he did not feel that leaving some research out of 
the due diligence files violated Respondent's Police and Procedures.'' 
R.D. at 172-73. However, the thrust of Mr. Schulze's testimony was that 
the Compliance Department would not necessarily document in the MFRs or 
the SOMS notes having performed Google searches or having obtained a 
fax from the customer; instead, it would simply place the information 
in the customer's due diligence file. Tr. 1337-39. Thus, this testimony 
simply does not address the issue.
    While Mr. Schulze also testified that he would ``not necessarily'' 
document ``every single time'' he made a phone call to a customer, this 
was in response to Respondent's counsel's suggestion that it was 
``[o]ften very difficult to get in touch with pharmacists'' because 
they are ``very busy people'' and ``don't sit at the end of the phone 
and take calls from [Respondent's] compliance department all the 
time.'' Id. at 1335-36.

[[Page 55428]]

Most significantly, Respondent's counsel then asked Mr. Schulze if 
``[i]t was your understanding that when compliance had significant or 
important information or contact with a customer, that type of 
information should be documented in the compliance file in either the 
MFRs, or the SOMS notes, or the ship to notes, or somewhere, correct?'' 
Id. at 1336-37. Mr. Schulze answered: ``Yes.'' Id.\20\
---------------------------------------------------------------------------

    \20\ Nor did Ms. Seiple, who headed the Compliance Department, 
assert that its employees actually contacted the pharmacies whenever 
the SOMS held orders but simply failed to document doing so. See RX 
103.
---------------------------------------------------------------------------

    In addition to her failure to acknowledge Respondent's 
representation to the Agency that ``[d]ocumentation on all orders held 
for review and their disposition are permanently retained,'' RX 12, at 
30; the ALJ also failed to acknowledge both the representations made by 
Respondent in the SOMS Appendix and what the SOMS notes actually 
showed. As found above, the SOMS Appendix states that: ``[t]he ultimate 
status, accept or reject, will be shown along with the date/time and 
user associated with the action. A Reason code and notes will also be 
provided as additional detail supporting the decision.'' RX 78, at 64 
(emphasis added). Thus, I respectfully reject the ALJ's premise that 
Respondent's Policies and Procedures did not require it to document the 
inquiries it made of the pharmacies in the course of reviewing those 
orders that were held by the SOMS.
    Moreover, as will be explained in the findings made with respect to 
each pharmacy, the SOMS notes did typically contain an explanation 
regarding the review of those orders that were held by the SOMS. 
However, that explanation invariably did not reflect that Respondent 
had contacted the pharmacy and obtained an explanation for why the 
order had exceeded the SOMS parameters, but rather, some other 
explanation, such as that the order was released because it was 
supported by the pharmacy's utilization report (which the evidence will 
show was infrequently obtained). This begs the question, which the ALJ 
did not answer: why, if the Compliance Department had actually 
contacted the pharmacy and obtained a legitimate explanation for why 
the order exceeded the SOMS parameters, it then documented a reason for 
releasing the order which had nothing to do with anything the pharmacy 
may have told it?
    As for the ALJ's reliance on the fact that such documentation is 
not required by DEA regulations or any established industry standard, 
this is beside the point given that Respondent represented to the 
Agency that it would maintain such documentation. Moreover, there is 
ample authority to support the Government's position that the absence 
of such documentation proves that the pharmacies were not contacted.
    As a leading authority explains: ``The absence of an entry, where 
an entry would naturally have been made if a transaction had occurred, 
should ordinarily be equivalent to an assertion that no such 
transaction occurred, and therefore should be admissible in evidence 
for that purpose.'' V Wigmore, Evidence Sec.  1531, at 463 (Chadbourn 
rev. 1974) (citing cases); see also United States v. De Georgia, 420 
F.2d 889, 891 (9th Cir. 1969) (noting that Wigmore ``expressed the view 
that the absence of an entry concerning a particular transaction in a 
regularly-maintained business record of such transactions, is 
equivalent to an assertion by the person maintaining the record that no 
such transaction occurred''); A.Z. v. Shinseki, 731 F.3d 1303, 1311 
(Fed. Cir. 2013) (``The absence of certain evidence may be pertinent if 
it tends to disprove (or prove) a material fact.'') (other citation and 
quotation omitted); cf. Fed. R. Evid. r. 803(7).
    Accordingly, as a general matter, I respectfully reject the ALJ's 
conclusion that the Government's reliance on the lack of documentation 
in Respondent's records does not prove that its compliance department 
failed to contact the pharmacy and obtain an explanation for the orders 
that were held by the SOMS (as well as that it failed to independently 
verify any such explanation) but were subsequently released.\21\ To the 
contrary, where there is an absence of documentation that Respondent 
performed the respective act, that absence is substantial evidence that 
Respondent did not perform the act. And as will be shown below, with 
respect to most of the orders that were held by the SOMS, there is 
additional evidence that supports the conclusion that Respondent failed 
to contact the pharmacies and obtain an explanation for the orders, as 
most of the relevant entries provide a justification for shipping the 
order which has nothing to do with the type of explanation one would 
expect from a pharmacist.
---------------------------------------------------------------------------

    \21\ Even if the Agency's regulations do not require a 
distributor to document the reason provided by a customer to justify 
a suspicious order, documenting that reason is still an essential 
part of maintaining effective controls against diversion because 
subsequent events may provide information which show that the reason 
was false.
---------------------------------------------------------------------------

Respondent's Exceptions

    As noted above, Respondent takes exception to the ALJ's findings as 
to the number of orders placed by the various pharmacies that were held 
by the SOMS for review. Resp. Exceptions, at 13-16. While Respondent 
acknowledges that ``there was no direct evidence presented on this 
point,'' it argues that ``the ALJ incorrectly assumed that all orders 
identified on the SOMS notes were held'' for review. Id. at 13. 
Respondent contends that ``the only orders that were held by SOMS were 
those that also have the name of a Compliance Department employee in 
the `Decision By' column and, in most cases, notes in the `Notes' 
column.'' Id. Respondent contends that the ALJ's misinterpretation of 
the SOMS notes led her to ``vastly overstate[ ] the number of orders'' 
that were held. Id.
    Notwithstanding that Respondent put forward no direct evidence as 
to the interpretation of the SOMS notes, having reviewed the entire 
record I agree with Respondent that the ALJ misinterpreted the notes 
and overstated the number of held orders. Indeed, Respondent's 
materials indicated that all controlled substances orders were 
evaluated by the SOMS, and it seems logical that if an order did not 
exceed one of the three parameters, a review of the order would not be 
conducted and no name would be listed in the ``Decision By'' column. I 
find this conclusion to be supported by my review of the numerous 
oxycodone orders set forth in the Government's ARCOS data in light of 
the SOMS parameters. Accordingly, I do not adopt the ALJ's findings as 
to the number of held orders and instead, I make findings specific to 
the respective orders. See also RX 78, at 64.
    Next, Respondent argues that the ALJ erred in concluding that the 
Show Cause Order was not based on the covered conduct (i.e., those 
claims based on Respondent's conduct prior to April 1, 2009) which was 
resolved by the MOA. Id. at 16. Respondent argues that, because 
following the August 2009 Compliance Review, the Agency ``never advised 
[it] of any deficiencies in its compliance program, its suspicious 
order reporting, or its due diligence investigations as required under 
the MOA,'' the Agency ``breached the terms of the MOA by . . . 
asserting claims for which [the Agency] has already provided a release, 
and by seeking to impose liability for conduct [it] took in reliance on 
its successful Compliance Review.'' Id. at 16-17. Respondent further 
argues that ``while the ALJ excluded some so-called `Period of Review' 
evidence, she failed to make

[[Page 55429]]

factual findings . . . to ensure that [it] received the full benefit of 
its bargain set forth in the 2009 MOA.'' Id. at 17-18.
    More specifically, Respondent argues that ``[t]he due diligence 
[it] conducted on its customers was deemed satisfactory in 2009, but 
DEA now deems it insufficient.'' Id. at 18. Respondent further contends 
that ``DEA expressed no concern about any order for controlled 
substances [it] shipped in 2009, but [DEA] now claims Masters should 
have reported many of those same orders as suspicious.'' Id. 
Continuing, Respondent argues that ``[t]he policies and procedures DEA 
deemed satisfactory in 2009 are now deemed inadequate'' and that ``DEA 
has built its entire case on actions Masters took in reliance on that 
MOA.'' Id. Respondent then argues that, to protect its rights under the 
MOA and the Due Process Clause, the ALJ should have made the following 
three findings:

    That as of August 18, 2009, it ``had enacted policies and 
procedures that constituted effective controls against diversion 
regarding the distribution of any controlled substance'';
    That as of August 18, 2009, it ``had detected and reported to 
DEA suspicious orders of controlled substances after April 1, 
2009''; and
    That as of August 18, 2009, it ``had meaningfully investigated 
all new or existing customers, including each of the . . . 
pharmacies identified in the'' Show Cause Order, ``regarding the 
customer's legitimate need to order or purchase controlled 
substances.''

Id. Respondent thus contends that because the ALJ ``fail[ed] to make 
these findings, [it] was required to defend conduct that it took in 
reliance on DEA's inaction following the Compliance Review.'' Id. It 
therefore requests that I make these findings and hold ``that this 
proceeding was based, at least in material part, on `Covered Conduct' 
as defined in the MOA.'' Id. at 18-19.
    I reject Respondent's request. Contrary to Respondent's contention, 
the MOA granted Respondent immunity only for its conduct prior to April 
1, 2009, and none of the orders which are at issue in this proceeding 
occurred before this date. Moreover, to the extent Respondent's due 
diligence efforts prior to April 1, 2009, are at issue (i.e., to 
justify Respondent's failure to report an order as suspicious and/or to 
ship the orders which are at issue), the MOA specifically provides that 
``[n]otwithstanding the releases by DEA contained in this Paragraph, 
DEA reserves the right to seek to admit evidence of the Covered Conduct 
for proper evidentiary purposes in any other administrative proceeding 
against the Released Parties for non-covered conduct.'' GX 6, at 6 
(emphasis added).
    As for Respondent's contention that the ALJ failed to make findings 
to ensure that it received ``the full benefit of its bargain,'' Resp. 
Exceptions, at 17-18; nothing in the MOA provides a remedy in the event 
the Government's representatives provided an inadequate compliance 
review.\22\ Because the MOA provides no such remedy, Respondent's 
contention that it should be afforded immunity for its conduct after 
April 1, 2009 because it relied on the Government's failure to identify 
any deficiencies in its procedures following the compliance review must 
be evaluated by applying the principles of equitable estoppel. See, 
e.g., Dantran, Inc., v. U.S. Dept. of Labor, 171 F.3d 58, 66 (1st Cir. 
1999) (applying equitable estoppel and rejecting contractor's 
contention ``that the government should be estopped from pursuing an 
action based on practices . . . that drew no criticism at that time'' 
because it ``reasonably relied'' on ``the clean bill of health'' it 
received following investigation and compliance officer's failure to 
question its practices).
---------------------------------------------------------------------------

    \22\ Respondent actually got more than it bargained for, at 
least from the ALJ, when she ``ruled that the Government will be 
precluded from asserting any evidence of [Respondent's] failures to 
report suspicious orders during the Period of Review,'' the period 
from April 1, 2009 through the Compliance Review. Order Granting In 
Part Respondent's Motion in Limine to Preclude Admission of 
Irrelevant, Immaterial, and/or Incompetent Evidence and to Adopt 
Findings, at 14. Nothing in the MOA provided Respondent with 
immunity for potential violations during this additional period, and 
the ALJ's ruling ignores that even if Respondent was unclear as to 
what its regulatory obligations were, it always had the option not 
to accept and/or fill orders from the seven pharmacies during this 
period.
    Moreover, even though the Government did not take exception to 
the ALJ's ruling, in its Exceptions, Respondent specifically 
requests that I make the factual finding that ``[a]s of August 18, 
2009, [it] had detected and reported to DEA suspicious orders of 
controlled substances after April 1, 2009.'' Resp. Exceptions, at 
18. While I consider the suspicious order reports which are 
contained in RX 61, I conclude that any such finding should be based 
on a consideration of the entire record in this proceeding. 
Accordingly, I also consider the evidence as to whether the orders 
placed by the seven Florida pharmacies during the period from April 
1 through August 18, 2009 were suspicious and, if so, whether 
Respondent ``detected and reported'' them to DEA.
    As for the facts that the MOA provided that ``[t]he Compliance 
Review will be deemed satisfactory unless DEA determines that 
[Respondent] failed to detect and report to DEA suspicious orders of 
controlled substances after April 1, 2009,'' GX 6, at 5; and that 
the DI did not specifically identify any such orders as suspicious 
either at the time of the briefing or thereafter, Respondent's 
argument fails for the same reasons that I reject its contention 
regarding the DI's failure to identify specific deficiencies in its 
policies and procedures. As explained above, its contention that it 
relied on the DI's failure to identify any order as suspicious must 
rest on the principles of equitable estoppel. See, e.g., Dantran, 
171 F.3d at 66.
    In short, Respondent's reliance on the DI's failure to identify 
any specific order as suspicious was not reasonable given that the 
DI identified its sales to several of the pharmacies as being of 
concern and asked its Compliance Director if she was still selling 
to them. Moreover, even were I to conclude otherwise on the issue of 
the reasonableness of its reliance, Respondent cannot claim that the 
DIs engaged in affirmative misconduct when they failed to identify 
any specific orders as suspicious.
    For the same reasons, I reject the ALJ's ``find[ing] that DEA is 
barred by the MOA from sanctioning Respondent for not implementing 
additional UR analyses into its Policies and Procedures.'' R.D. at 
186.
---------------------------------------------------------------------------

    Under the traditional principles of equitable estoppel, `` `the 
party claiming the estoppel must have relied on its adversary's conduct 
`in such a manner as to change [its] position for the worse,' and that 
reliance must have been reasonable in that the party claiming the 
estoppel did not know nor should it have known that its adversary's 
conduct was misleading.'' Heckler v. Community Health Services of 
Crawford Cty., Inc., 467 U.S. 51, 59 (1984) (quoting Wilber Nat'l Bank 
v. United States, 294 U.S. 120, 124-25 (1935)). Moreover, with respect 
to claims of estoppel against the Government, the Supreme Court has 
explained that:

[w]hen the Government is unable to enforce the law because the 
conduct of its agents has given rise to an estoppel, the interest of 
the citizenry as a whole in obedience to the rule of law is 
undermined. It is for this reason that it is well settled that the 
Government may not be estopped on the same terms as any other 
litigant.

Id. at 60.

    Accordingly, the D.C. Circuit has explained that:

[a] party attempting to apply equitable estoppel against the 
government must show that ``(1) there was a definite representation 
to the party claiming estoppel, (2) the party relied on its 
adversary's conduct in such a manner as to change [its] position for 
the worse, (3) the party's reliance was reasonable[,] and (4) the 
government engaged in affirmative misconduct.''

Keating v. FERC, 569 F.3d 427, 434 (D.C. Cir. 2009) (quoting Morris 
Comm. Inc. v. FCC, 566 F.3d 184, 191-92 (D.C. Cir. 2009)).
    Applying this test, Respondent cannot prevail.\23\ Even assuming 
that Respondent has made the requisite showing as to the first two 
prongs, its contention fails because its reliance on the DIs' failure 
to identify specific deficiencies in its policies was not reasonable 
and there is no evidence that

[[Page 55430]]

the Government's representatives engaged in affirmative misconduct.
---------------------------------------------------------------------------

    \23\ Notably, while in its Exceptions, Respondent argues that it 
engaged in ``conduct that it took in reliance on DEA's inaction 
following the Compliance Review,'' it does not acknowledge that its 
claim is subject to the principles of equitable estoppel.
---------------------------------------------------------------------------

    As the Supreme Court has explained, to establish that one's 
reliance was reasonable, ``the party claiming the estoppel [must show 
that it] did not know nor should it have known that its adversary's 
conduct was misleading.'' Heckler, 467 U.S. at 59 (citing Wilber Nat'l 
Bank, 294 U.S. at 124-25). Moreover, `` `if, at the time when [the 
party] acted, [it] had knowledge of the truth, or had the means by 
which with reasonable diligence [it] could acquire the knowledge so 
that it would be negligence on [its] part to remain ignorant by not 
using those means, [it] cannot claim to have been misled by relying 
upon the representation or concealment.' '' Id. at 59 n.10 (quoting 3 
J. Pomeroy, Equity Jurisprudence Sec.  810, at 219 (S. Symons ed. 
1941)).
    As found above, while the DI did not identify any specific 
deficiencies in Respondent's policies and procedures, he advised 
Respondent's employees that he perceived ``potentially problematic 
trends'' in its sales to several of the pharmacies of various highly 
abused controlled substances including oxycodone 30 mg, methadone 10 
mg, alprazolam 2mg, and hydrocodone. The DI also identified the 
expected ratio of controlled to non-controlled dispensings at 
pharmacies. This testimony was corroborated by the testimony of Messrs. 
Harmon and Corona. Indeed, as found above, Mr. Harmon testified that as 
one of the DIs reviewed Respondent's files, with respect to several of 
the pharmacies whose orders are at issue in this proceeding, he turned 
to Ms. Seiple and specifically asked her if Respondent was still 
selling to them.
    As also noted above, after the Compliance Review, Mr. Harmon also 
wrote a memo setting forth various steps Respondent should undertake, 
including using the utilization reports submitted by the pharmacies 
whose dispensings of controlled substances comprised more than 50 
percent of their dispensings and thus, in the memo's words, suggested 
that they were ``engaged in inappropriate business activity.'' GX 38. 
Thus, the fact that the DI did not specifically instruct Respondent's 
employees that the procedures were deficient because they did not use 
the URs to analyze whether the respective pharmacies' controlled 
substance dispensing ratios were consistent with legitimate dispensing 
activity provides no support to Respondent. As will be shown below, the 
URs provided extensive evidence that the identified pharmacies were 
placing suspicious orders and potentially diverting controlled 
substances. Respondent cannot credibly argue that it reasonably relied 
on the DI's failure to object to the limited manner in which it used 
the URs or that it had the right to ignore the evidence it obtained 
through the URs because the DI did not specifically instruct its 
employees to use the URs in this manner.
    Nor does the evidence support a finding that Respondent was 
affirmatively misled by either the DI's statement at the completion of 
the review or by the Government's failure to subsequently identify any 
deficiencies in Respondent's policies and procedures. As the First 
Circuit has explained, ``[i]t is common ground that affirmative 
misconduct requires something more than simple negligence.'' Dantran, 
171 F.3d at 67; see also U.S. v. Hemmen, 51 F.3d 883, 892 (9th Cir. 
1995) (``When a party seeks to invoke equitable estoppel against the 
government, we . . . require a showing that the agency engaged in 
affirmative conduct going beyond mere negligence[.]'') (other citations 
and internal quotations omitted).
    In this case, there is simply no evidence that the DI's statement 
at the conclusion of the compliance review (that Respondent ``ha[d] 
progressively engaged in actions to implement into [sic] policies and 
procedures to promote an effective system'' to prevent diversion, GX 
48A, at 8 ] 15) was made with the ``intent to mislead [Respondent] 
about [its] responsibilities.'' Dantran, 171 F.3d at 67. The same is 
true with respect to the Government's failure to identify any 
deficiencies in writing following the review. In short, ``there is not 
the slightest whiff of affirmative misconduct'' on the part of the DI. 
Id.
    There is a further reason for rejecting Respondent's exception. As 
the DI testified, his statement that Respondent had ``progressively 
engaged in actions'' to implement an effective system of diversion 
controls was based on Respondent's policies and procedures being 
``properly implemented.'' GX 48A, at 8 ] 15.
    As found above, during the Compliance Review, Respondent 
represented to the Government that when an order was held for exceeding 
the SOMS parameters, it would take various actions to investigate 
whether the order was legitimate, which included contacting the 
pharmacy to obtain an explanation for the order, independently 
verifying the explanation, and obtaining a new UR. Yet, as demonstrated 
below in the discussion of the pharmacy-specific evidence, the record 
shows that Respondent rarely complied with its policies and procedures 
with respect to the seven Florida pharmacies.
    Thus, while Respondent contends that DEA is improperly seeking to 
impose liability for failing to report orders as suspicious, claiming 
that ``[t]he policies and procedures . . . deemed satisfactory in 2009 
are now deemed inadequate,'' its contention is unavailing given the 
extensive evidence that it repeatedly failed to comply with these 
policies. Moreover, as demonstrated below, Respondent repeatedly 
justified its failure to report these orders (as well as its subsequent 
filling of the orders), notwithstanding its failure to follow these 
policies, on the ground that as a part of its ongoing due diligence, it 
had conducted an extensive investigation and determined that the orders 
were not suspicious and were consistent with the respective pharmacy's 
business model. See generally RX 103 (Seiple Decl.). Respondent thus 
placed the adequacy of its due diligence efforts at issue. I therefore 
reject its contention.\24\
---------------------------------------------------------------------------

    \24\ For the same reasons, I reject Respondent's further 
contention that because ``the Government failed to provide any 
notice to [it] regarding the use of [the] URs, the ALJ should not 
have allowed the Government to introduce any evidence in regard to 
such use'' to show that it did not ``comply with the MOA, or 
otherwise failed to maintain effective controls again diversion.'' 
Resp. Exceptions, at 19.
    Respondent further ignores that it put in issue the manner in 
which used the URs. As will be shown in the discussion of the 
pharmacy-specific evidence, with respect to each of the pharmacies, 
Ms. Seiple stated that Respondent ``was aware of the volume of 
oxycodone and other controlled drugs being dispensed by [the 
pharmacy], and the percentage of controlled drugs dispensed relative 
to other drugs,'' that it ``specifically investigated the reasons 
why [each pharmacy's] ordering and dispensing patterns were as 
indicated on the URs,'' and that ``[t]he URs and other information 
provided by [the pharmacy] were consistent with the pharmacy's 
business model.'' See, e.g., RX 103, at 40.
---------------------------------------------------------------------------

    Having addressed the relevant exceptions, I now turn to the 
pharmacy-specific evidence.

Tru-Valu Drugs, Inc.

    According to Respondent's due diligence file, Tru-Valu Drugs, Inc., 
was a pharmacy located in Lake Worth, Florida which had been in 
business for 43 years and had the same ownership for 32 years. RX 2A, 
at 76-77. According to a Pharmacy Evaluation done on May 28, 2008 by a 
consultant retained by Respondent, Tru-Valu filled 150 prescriptions 
per day, of which 40 percent were for controlled substances. Id. at 78-
81. Tru-Valu reported that 60 percent of its business was cash and that 
insurance and Medicare/Medicaid together comprised 40 percent. Id. at 
78.

[[Page 55431]]

It also disclosed that it had purchased from four other pharmaceutical 
distributors in the last 24 months, including Amerisource Bergen, H.D. 
Smith, ANDA, and Mason Vitamin. Id. at 77.
    Tru-Valu was not located in a medical center. Id. at 79. It did not 
serve nursing homes, hospice programs or inpatient facilities. Id. at 
78. However, it did fill prescriptions for pain management clinics, and 
its owner and pharmacist-in-charge (PIC) advised that ``[t]hey do fill 
a large number of narcotic prescriptions each day'' and ``that he has 
pushed for this business with many of the area pain doctors.'' Id. at 
79-81. Tru-Valu's owner also advised Respondent's consultant that 
``[h]e is concerned about the current restrictions put on his buying by 
several suppliers.'' Id. at 81.
    Tru-Valu provided the names of five pain management doctors whose 
prescriptions it filled. Id. at 79. Tru-Valu's due diligence file 
contains no evidence that Respondent performed any check on the 
licensure and registration status of these physicians and whether the 
physicians had any specialized training or held board certification in 
pain management or addiction medicine. Nor is there any evidence that 
Respondent inquired of Tru-Valu's pharmacist as to the nature of the 
prescriptions these physicians were writing (i.e., the quantity and 
whether drug cocktails such oxycodone 30 mg and alprazolam were being 
prescribed for patients). Moreover, two of these doctors (Joel Panzer 
and Stephanie Sadick) appear on Respondent's list of terminated 
customers, the former having been terminated on September 3, 2008 and 
the latter on April 3, 2009. RX 62A, at 3; RX 62E, at 2.
    Apparently seeking an increase in the amount of oxycodone it could 
purchase, on May 22, 2008, Tru-Valu provided Respondent with a 
utilization report for April 2008 which listed and ranked the top 300 
prescription drugs (both the controlled and non-controlled) it 
dispensed by the quantity.\25\ RX 2A, at 70-76. The report showed that 
oxycodone 30 mg was the top drug with 132,506 dosage units dispensed, 
followed by methadone 10 mg at 53,842 du, alprazolam 2 mg at 55,120 du, 
sterile water for irrigation at 24,000 units (a non-controlled 
prescription product), Endocet 10/325 mg (oxycodone/acetaminophen) at 
4,146 du, Hibiclens 4% liquid (a non-controlled topical anti-
microbial), carisoprodol 350 mg at 3,703 du (then controlled under 
Florida law and since placed in schedule IV of the CSA), valproic acid 
250 mg (non-controlled) at 2,400, and OxyContin 80 mg (oxycodone 
continuous release) at 2,220 du. Id. at 70. Thus, oxycodone 30 mg, 
methadone 10 mg, and alprazolam 2 mg constituted more than 241,000 
dosage units out of the total quantity of more than 340,000 du 
dispensed that month.\26\ Id. at 70, 75. In contrast, Tru-Valu 
dispensed only 2,479 dosage units of hydrocodone 10 mg, 120 du of 
hydrocodone 7.5, and 390 du of hydrocodone 5 mg, even though 
hydrocodone was the most widely prescribed drug nationally from 2006 
through 2010. See id. at 70-76; RX 81, at 46-47.
---------------------------------------------------------------------------

    \25\ Twelve days before the site visit, Tru-Valu had requested 
an increase in the quantity of solid dose oxycodone it could 
purchase from Respondent. According to the form, which appears to 
have been completed by an account manager, Tru-Valu was using 750 
bottles per month and the account manager sought an exemption from 
Respondent's sales limit on the basis that it qualified as a 
``[l]arge full line pharmacy.'' RX 2A, at 93.
    According to the file, Respondent obtained a utilization report 
that listed only controlled substances and then requested a report 
which included non-controlled drugs as well. The form bears the 
notations: ``Approved 25k/mo'' and ``6/4/08.'' Id.
    \26\ These were not the only controlled substances listed on the 
report. The report lists additional dispensings of oxycodone 30 mg 
under different drug codes, likely because the products were 
manufactured by a company other than the manufacturer whose products 
comprised the bulk of Tru-Valu's dispensings. See id. at 70 (also 
showing at line 28, dispensing of 540 Roxicodone 30; at line 43, 360 
oxycodone 30; at line 44, 354 oxycodone 40 mg).
---------------------------------------------------------------------------

    Tru-Valu's file also includes additional URs for the months of 
December 2008, October 2009, February 2010, July 2010, and September 
2010. Tru-Valu's December 2008 UR listed the top 200 prescription drugs 
it dispensed, which totaled more than 300,000 units. Id. at 64. 
Notably, Tru-Valu dispensed more than 192,000 dosage units of oxycodone 
30 during the month. Id. at 61. With the exception of carisoprodol 
(which was then non-controlled under federal law), each of the top ten 
drugs Tru-Valu dispensed was a controlled substance; these included 
alprazolam 2 mg (27,268 du), methadone 10 mg (11,848 du), and Endocet 
(oxycodone) 10/325 mg (6,976 du). Id.
    While Tru-Valu's October 2009 UR showed a decline in its 
dispensings of oxycodone 30 mg to a total of 83,830 du out of its total 
dispensings of approximately 167,000 du, id. at 51, 58; its February 
2010 UR showed that in just these four months, its dispensings of 
oxycodone 30 had more than doubled to 192,110 du.\27\ Id. at 47. The UR 
also showed that Tru-Valu's dispensings of oxycodone 15 totaled 38,563 
du and its dispensings of alprazolam 2mg totaled 30,655 du. Id. These 
three drugs alone accounted for more than 81 percent of Tru-Valu's 
dispensings. Moreover, the top ten drugs by dispensing volume were 
comprised entirely of oxycodone products in various dosages, methadone, 
and alprazolam, and 17 of the top 20 drugs were federally controlled 
substances. Id.
---------------------------------------------------------------------------

    \27\ The Feb. 2010 UR listed the top 200 drugs and total 
dispensing of approximately 321,400 dosage units. RX 2A, at 47.
    During the cross-examination of the DI, Respondent's counsel 
pointed out that some of the URs only listed the top 200 or 300 
drugs that were dispensed. However, Respondent's Policy 6.2 directed 
that it obtain ``[a] current utilization report, listing all of the 
pharmaceuticals'' (including both controlled and non-controlled), 
dispensed by the pharmacy ``in the most recent calendar month.''
---------------------------------------------------------------------------

    Tru-Valu's July 2010 UR showed a further increase in its dispensing 
of oxycodone 30 mg to 206,132 units out of total dispensings for all 
prescription products of 337,314.\28\ RX 2A, at 29, 36. It also showed 
that Tru-Valu had dispensed 32,441 du of oxycodone 15 and 31,271 du of 
alprazolam 2 mg during the month. Id. at 29-30. With the exception of 
carisoprodol (which was the tenth-most dispensed drug), each of the top 
ten drugs was a formulation of oxycodone, methadone, or alprazolam. So 
too, with the exception of carisoprodol and ibuprofen, each of the top 
20 drugs dispensed was either a schedule II narcotic or a schedule IV 
benzodiazepine (alprazolam or diazepam).
---------------------------------------------------------------------------

    \28\ The July 2010 UR listed 377 line items of dispensings down 
to a quantity of one. RX 2A, at 36.
---------------------------------------------------------------------------

    The final UR in Tru-Valu's file (Sept. 2010) showed that it 
dispensed 146,560 dosage units of oxycodone 30 mg during the month. Id. 
Of further note, for each of the five URs in Tru-Valu's file, 
controlled substances were predominant among the drugs dispensed.
    Tru-Valu's file also includes a form entitled ``DEA Schedule 
Orders--Due Diligence Report Form,'' the purpose of which was ``to 
evaluate customers who demonstrate a pattern of large orders of control 
[sic] product.'' Id. at 41. This form, which is dated ``1-9-09,'' noted 
that Tru-Valu had requested an increase in its oxycodone purchases. Id. 
The form, which apparently reflected information the pharmacy provided 
in a phone survey, noted that Tru-Valu's daily script average was 200, 
that 50 percent of the prescriptions were for controlled drugs, and 
that 25 percent of the prescriptions were schedule II drugs. Id. The 
form also noted that 25 percent of the prescriptions were paid for by 
insurance. Id.
    The form further noted various procedures employed by the pharmacy.

[[Page 55432]]

For example, to prevent doctor shopping, the pharmacy stated that it 
did not fill prescriptions if patients changed doctors and that it kept 
a list of where patients were getting scripts; as to how the pharmacy 
ensured that the prescribers were exercising proper standards of care, 
the pharmacy replied that ``they set limits on what they fill and they 
watch there [sic] patients very careful [sic] and never do early 
refill. They also don't fill for some docs.'' Id. at 42.
    With respect to whether it had ever refused to fill a prescription 
(to which the pharmacy's answers was ``yes, every day''), the pharmacy 
reported that the most common reasons were ``early refill[s],'' if the 
patients were ``under 21,'' if patients lived ``out of area,'' or if it 
did not fill for a doctor. Id. As for whether the pharmacy had ever 
``stopp[ed] filling prescriptions for a certain physician,'' the 
pharmacy reported that it had when it was ``not comfortable with there 
[sic] prescribing license.'' Id. The pharmacy also stated that it did 
not fill prescriptions written by out-of-state and out-of-area doctors 
and that if it got a prescription from a new doctor, it would call the 
DEA and check the license, and that it ``belong[ed] to a network of 
pharmacies that warn each other.'' Id. Finally, the form noted that 
Tru-Valu had been asked to submit its most recent pharmacy inspection 
report; a UR, which ``should include all controls and non-controls''; 
and any written policies and procedures for controlled substances. Id. 
at 43.
    Tru-Valu's controlled substance limit (the SOMS trigger) for 
oxycodone was initially set at 25,000 dosage units and, according to 
the SOMS notes, remained at this level through January 2010. Id. at 93; 
see also GX 15, at 111 (SOMS Notes of 10/27/09: ``Ok to ship . . . oxy 
@ limit 25k with this order'' and Jan. 29, 2010--``ok to ship, under 
the CSL of 25k''). However, in November 2009, Respondent filled orders 
totaling 26,200 du of oxycodone products, which included 1,200 du of 
oxycodone 80; 9,600 du of oxycodone 30; 14,400 du of oxycodone 15; and 
1,000 du of oxycodone 10/325. GX 10F, at 1-2. All but 3,600 du were 
ordered on the last day of the month. Id. at 1-2. While these orders 
placed Tru-Valu over the 25,000 CSL, the SOMS notes do not contain the 
name of a reviewer or an explanation for why the orders were shipped. 
GX 15, at 111.\29\
---------------------------------------------------------------------------

    \29\ The actual oxycodone orders placed by Tru-Valu (as opposed 
to the amount shipped) are not in the record. However, various 
entries in the Memo for Records and SOMS notes include notations as 
to the size of various orders.
---------------------------------------------------------------------------

    In February 2010, Tru-Valu again submitted orders in excess of the 
25,000 du threshold. According to Respondent's records, Mr. Schulze, a 
compliance clerk, called Tru-Valu and spoke with its pharmacist-in-
charge about the oxycodone order. RX 2A, at 9. The pharmacist in charge 
reported that an Albertson's (a supermarket) had ``closed by him'' and 
that he was ``getting some of [its] business.'' Id.
    However, even though Respondent's Policy 6.2 required that the 
pharmacist's explanation then be independently verified, there is no 
documentation to support that this was done. Moreover, while the SOMS 
note for this order states: ``Ship with reservation UR supports Oxy 
order reviewed by JEN,'' GX 15, at 111; Respondent did not obtain a new 
UR for ``the most recent calendar month'' as required by its Policy 
6.2, and had last obtained a UR in October 2009. Notwithstanding its 
failure to comply with its policy, during February 2010, Respondent 
shipped Tru-Valu 39,600 dosage units of oxycodone 30 mg and 7,200 
dosage units of oxycodone 15 mg for a total of 46,800 du. GX 10F, at 1-
2. Although the orders exceeded the CSL by nearly 22,000 du, Respondent 
did not report any of the orders as suspicious.
    Even assuming that this figure became the new CSL for Tru-Valu's 
oxycodone orders (notwithstanding Respondent's failure to verify the 
legitimacy of the order), in March 2010, Tru-Valu again ordered in 
excess of the CSL. According to an entry dated March 15, 2010 in the 
Memo for Records, compliance ``requested UR for file to support this. 
Need site visit. RWR [release with reservation] until site visit 
completed.'' RX 2A, at 9. The Memo for Records includes a further note 
on this date stating: ``Increase in Business Due to Albertson's 
Closing.'' Id. However, while a UR was obtained for the month of 
February 2010, it was not obtained until April 1, 2010. Id.; see also 
id. at 47. Once again, there is no evidence that Respondent 
independently verified that the Albertson's had closed. See generally 
RX 2A. Respondent nonetheless shipped to Tru-Valu 43,200 du of 
oxycodone 30 and 12,000 du of oxycodone 15 for a total of 55,200 du. GX 
10F, at 1-2.
    An MFR entry dated March 31, 2010, states: ``Called to mention Oxy 
15 need to be deleted. Pharmacy closed.'' RX 2A, at 9. While there is 
no evidence establishing the size of the oxycodone 15 order, as 
explained above, even assuming that the CSL had been raised to 46,800 
as a result of Tru-Valu's February orders, its March orders again 
exceeded the CSL. Yet, here again, Respondent failed to comply with its 
policy by verifying the reason for the increase in the orders. 
Moreover, this order was not reported as suspicious.
    In April 2010, Tru-Valu did not place any orders until April 27, 
when it ordered a total of 36,000 oxycodone 30 and 12,000 oxycodone 15. 
GX 15, at 112; GX 10F, at 1-2. While the orders were held for review by 
the SOMS (either because of frequency or pattern), because the orders 
were under the previous month's total of 55,200, Respondent did not 
deem the order to be excessive and filled the orders. GX 15, at 112 
(SOMS notes). Respondent did not, however, contact the pharmacy and 
obtain an explanation for the order, which it independently verified.
    On May 10, Tru-Valu ordered 12,000 du of oxycodone 30. GX 10F, at 
1. A notation in the SOMS Notes states: ``Ok to ship first monthly 
purchase of Oxy leaves 13k.'' GX 15, at 112. Additional SOMS notes 
dated May 13 and 14 indicate that Tru-Valu placed additional orders on 
these dates and a notation made on the latter date states: ``RWR do nto 
[sic] ship over 25k without review by committee see mas and mfr.'' Id.
    As for the MFR, it contains a handwritten note (of marginal 
legibility) dated May 14, which states ``increase on oxy--why orders 
increasing'' and that Tru-Valu's pharmacist had stated that H.D. Smith 
(another distributor) had ``cut back 60-70k'' and from ``40 bottles to 
8 bottles'' a day, as well as a note that ``Started to cut back in 
March/Feb?'' RX 2A, at 7. The MFR note then states that Tru-Valu had 
``purchased 120 bottles on 5-10-10'' and that there was a ``change in 
buy[ing] patterns due to HD Smith dropping allocation.'' Id. The entry 
continues with the following notation: ``RWR 120 bottles of oxy under 
CSL of 25 k. Don't ship over 25 k w/out rev @ 61k rolling 30 high due 
to pattern change due to allocation decreasing from wholesaler.'' Id.
    However, here again, while the SOMS had placed the order on 
compliance hold, there is no evidence that Respondent's compliance 
department independently verified Tru-Valu's claim that H.D. Smith had 
reduced its allocation to the pharmacy. Nor did Respondent obtain a new 
UR. Moreover, three days later (May 17), Respondent filled an 
additional order and shipped 12,000 du of oxycodone 30 to Tru-Valu. GX 
10F.
    On May 18, Tru-Valu apparently placed a further order. GX 15, at 
112. According to the Memo for Records, the order was ``deleted due to 
past 30 days @73k.'' RX 2A, at 7. Continuing, the entry states: ``Can 
place order after 5-27-10 Committee Rev.'' Id. However,

[[Page 55433]]

while the order again placed Tru-Valu well over its CSL, the order was 
not reported to DEA as suspicious.\30\
---------------------------------------------------------------------------

    \30\ According to the SOMS Appendix, ``[t]o determine if an 
order . . . is invalid for size, the system calculates the total 
number of doses invoiced in the past 30 days plus the total doses on 
open orders plus the number of doses on the received order and 
compares it to the monthly limit.'' RX 78, at 60. While this 
suggests that quantities that were edited downwards or deleted from 
an order were not counted in evaluating a new order, it also 
suggests that the entire quantity of a new order was to be 
considered in determining whether a new order exceeded the CSL.
---------------------------------------------------------------------------

    On May 27, Tru-Valu placed additional orders for both oxycodone 30 
and 15. GX 10F, at 1-2. According to the Memo for Records, Tru-Valu 
requested 12,000 du of oxycodone 15 in addition to 24,000 du of 
oxycodone 30. RX 2A, at 7. The Memo for Record further includes an 
illegible word (or two) followed by the words ``allotment 55,200--
Current size in Soms is @24 k/can get 31,200 for current period.'' Id. 
Further notations on the same day indicate that Respondent talked to 
the pharmacist and that he requested that 72 bottles (of 100 du each) 
``be sent from the Oxy 15's of 120.0 requested,'' id., and other 
evidence shows that Respondent shipped 24,000 du of oxycodone 30 and 
7,200 du of oxycodone 15 to Tru-Valu on this date. GX 10F, at 1-2.
    Thus, during May, Respondent had shipped 65,200 du of oxycodone to 
Tru-Valu; it had also deleted the May 18 order, the size of which is 
unknown, and edited 4,800 du off the May 27 order. Yet even though the 
orders clearly exceeded the CSL and Respondent had never verified Tru-
Valu's explanation, it did not report the orders as suspicious.
    A note in the Memo for Records dated June 2, 2010, states that 
``this account to be reviewed @25 Do not ship over 25 w/out committee 
review. . . . order on 5-27 was released w/out review by committee/
management this was a mistake the account can not [sic] receive any 
more.'' Id. The Memo for Records includes a notation that the committee 
conducted its review the next day and determined that ``25k is place 
for review.'' Id. The notes also indicate that Tru-Valu was contacted 
and told that ``the account has received over allotment mistake both 
months'' followed by illegible writing. Id.
    Notwithstanding the above entry, Respondent shipped 12,000 du of 
oxycodone 30 and 9600 du of oxycodone 15 to Tru-Valu on June 9, 
followed by an additional 12,000 du of oxycodone 30 on June 15, for a 
total of 33,600 du. GX 10F, at 1-2. The SOMS notes for both orders 
include notations to the effect: ``release with reservation per 
committee.'' GX 15, at 112. Here again, while the orders exceeded the 
CSL as determined by the committee, there is no evidence that Tru-Valu 
was contacted after it placed the June 15 order for 12,000 oxycodone 
30. Nor did Respondent obtain a new UR. And Respondent did not report 
the orders as suspicious.
    According to an email train, on June 21, Tru-Valu placed an 
additional order for 120 bottles of oxycodone 30. RX 95, at 2. Here 
again, this order placed Tru-Valu's orders over its oxycodone CSL. 
While the order was cancelled, apparently at the request of the PIC 
because insurance paid less than Respondent's price, id. at 1-2, it was 
not reported as suspicious even though it placed Tru-Valu's orders over 
its CSL.
    Still later that month, the Memo for Records includes a note for 
June 30, with the entry: ``order deleted placed too early[.] See SOMs 
review of last 30 days.'' RX 2A, at 2. Here again, even assuming that 
Respondent contacted Tru-Valu regarding this order before deleting it, 
there is no documentation as to what the pharmacist may have told 
Respondent as to why he placed the order, and a new UR was not 
obtained.
    Tru-Valu apparently resubmitted the order the following day (July 
1), as Respondent shipped to it 13,200 du of oxycodone 30. GX 10F, at 
1. After noting ``RWR'' (release with reservation), the SOMS note 
states: ``order for 132.0 bottles from 288 per may-30 on the pattern 
high of 46,800 rest of order can be resubmitted for review after 7/15/
10.'' GX 15, at 112. However, on shipping the 132 bottles, Respondent 
had shipped 46,800 du of oxycodone on a rolling 30-day basis and Tru-
Valu's orders totaled 62,400 du. Even assuming that the CSL was raised 
to 33,600 du from the 25,000 du level (discussed in the notes for the 
June 3rd committee review) based on Tru-Valu's June orders, there is no 
documentation that Respondent contacted Tru-Valu to obtain an 
explanation for the increase in its orders or that it verified Tru-
Valu's previous assertion that H.D. Smith had reduced its allocation. 
Nor did it obtain a new UR. And it did not report the orders as 
suspicious.
    On July 15, 2010, Tru-Valu apparently resubmitted the rest of its 
order as Respondent shipped 20,400 du of oxycodone 30 to it. GX 10F, at 
1. The corresponding note states: ``ok to ship a total of 204 Oxy,\31\ 
order was edited from 336 to 204 to meet csl of 33600.'' GX 15, at 112. 
Moreover, a note in the Memo for Records for this date states: ``Oxy 
CSL is @ 33,600 do not go over this amount w/o review.'' RX 2A, at 2.
---------------------------------------------------------------------------

    \31\ This is a reference to 100 du bottles.
---------------------------------------------------------------------------

    Even assuming that Tru-Valu's oxycodone CSL had been raised to 
33,600 du (and excluding the deleted June 30 order and the amount 
deleted from the July 1 order), Tru-Valu's July 2010 orders still 
totaled 46,800 du and thus exceeded the CSL. Yet Respondent again 
failed to obtain an explanation from Tru-Valu for why it was ordering 
the quantities that it was, and obviously, having failed to obtain an 
explanation, there was nothing to independently verify. Nor did 
Respondent obtain a new UR. And it failed to report the order as 
suspicious.
    On August 2, Tru-Valu ordered and Respondent shipped to it 25,200 
du of oxycodone 30 and 1,200 du of oxycodone 15. GX 10F. The same day, 
Respondent obtained a UR for the month of July, and on August 6, its 
inspector conducted a site visit. RX 2A, at 2.
    According to the site visit report, Tru-Valu was a retail community 
pharmacy filling 200 prescriptions per day, of which 60 to 80 percent 
were controlled substances and ``60% of total'' were schedule II drugs. 
RX 2A, at 12, 18. Tru-Valu reported that H.D. Smith was its primary 
wholesaler and that Amerisource and Respondent were its secondary 
wholesalers. Id. at 18. While Respondent's inspector noted that Tru-
Valu appeared to have ``a full selection of pharmaceuticals'' and an 
``extensive selection of front store merchandise,'' he also wrote that 
the pharmacy was ``very busy'' with a ``long line of mostly younger 
people'' who were ``thin, tattooed, casually dressed,'' and that there 
were ``10 people'' and ``more coming in.'' Id. at 19. The inspector 
noted the time of his report as 2:44 p.m. Id.
    The inspector further documented that the pharmacy had posted signs 
stating ``No insurance for: Oxycontin, oxy solution, [and] oxycodone by 
Mallinckrodt, Actavis.'' Id. at 20. The pharmacist on duty had only 
worked at Tru-Valu for two months and did not know why the signs were 
posted. Id. According to an MFR note, several weeks later, a member of 
Respondent's compliance department spoke with Tru-Valu's PIC, who 
stated that insurance did not reimburse at ``high enough'' rate ``to 
make up for the expense.'' Id.; see also RX 2A, at 2. The inspector 
also observed signs stating that there was a ``pill limit'' of 180 du 
on oxycodone 30 and 90 du on oxycodone 15, as well as a sign stating: 
``must have recent MRI report.'' Id. However, in contrast to the 
questions about whether Tru-Valu accepted insurance on oxycodone

[[Page 55434]]

prescriptions, there is no evidence that Respondent asked about the 
pill-limit signs or the MRI requirement.
    A note in the margin next to the August 2 MFR entry, which is dated 
August 16, states that an order, the size of which is unclear, was 
deleted ``per review until [the] review completed.'' RX 2A, at 2. 
However, the order was not reported as suspicious.
    While no additional oxycodone orders were filled during August, on 
September 1, Respondent shipped to Tru-Valu 24,000 du of oxycodone 30 
and 2,400 du of oxycodone 15. GX 10F. An MFR note of the same date 
states: ``under compliance for [illegible] of site visit.'' RX 2A, at 
2. A second entry of the same date memorializes a discussion with Tru-
Valu's PIC regarding why he did not accept insurance on oxycodone with 
the further notation of ``RWR Orders pending.'' Id. However, there is 
no evidence that Respondent questioned Tru-Valu's PIC about the other 
observations recorded by its inspector, including the signs imposing 
pill limits on oxycodone and requiring that the patients have a recent 
MRI, or the long line of mostly younger people who were apparently 
filling their prescriptions and doing so in the middle of the 
afternoon.
    On September 21, Respondent shipped 7,200 du of oxycodone 30 mg. GX 
10F, at 1. The SOMS note for this dates states: ``oxy edited for csl on 
product.'' GX 15, at 113. Likewise, the MFR notes include the notation 
``RWR'' and the statements: ``order edited from 264--72 per SOMS'' and 
``Do not release any more product [illegible] reservations addressed.'' 
RX 2A, at 2. Here again, Tru-Valu's orders had totaled 52,800 du and 
exceeded the CSL, yet Respondent did not contact the pharmacy to obtain 
an explanation for the order and a new UR. Nor did it report the order 
as suspicious.
    The next day, Respondent shipped an additional 13,200 du of 
oxycodone 30 to Tru-Valu. GX 10F. According to the MFR notes, on this 
day, Respondent contacted Tru-Valu's PIC to discuss the edit of his 
order and asked him if he got a lot of out-of-state customers. RX 2A, 
at 2. According to the notes, the PIC said: ``not any more since we 
stopped filling out of state scripts about a year ago.'' Id. Tru-Valu's 
PIC stated that he ``runs out of product'' and ``only fills for 
regulars,'' followed by the words ``in state customers w/Florida ID'' 
which is in clearly different handwriting.\32\ Id. Respondent did not, 
however, obtain an explanation as to why Tru-Valu was running out of 
oxycodone product.
---------------------------------------------------------------------------

    \32\ It is noted that the words ``a couple'' are written in the 
date column immediately preceding the words ``a year ago'' in the 
notes area of the MFR form, suggesting that these words were 
inserted after the initials of Mr. Corona and the words ``No 
Servicing Out of State.'' RX2A, at 2.
---------------------------------------------------------------------------

    Additional notes for this date indicate that an account review was 
conducted, during which the compliance committee and Wayne Corona 
reviewed the site visit, the UR, and information about Tru-Valu's Web 
site.\33\ Id. at 3. The MFR notes indicate that Corona directed that 
Tru-Valu be approved to increase its oxycodone purchases up ``to the 
pattern high of 46800 over the last 12 months.'' Id. at 2. Additional 
notes cryptically state: ``to pattern high of 46,800 less than 70% of 
UR \34\ on fill with current allotment from Masters taken into 
consideration 46,800 42% of UR.'' Id. at 3. Respondent then approved 
the shipment of an additional 13,200 du of oxycodone 30 to Tru-Valu. 
See id. at 2-3; GX 10F, at 1.
---------------------------------------------------------------------------

    \33\ There is no evidence that Tru-Valu was using its Web site 
to distribute controlled substances.
    \34\ A note on the previous page states: ``within parameters 
70%.'' RX 2A, at 2.
---------------------------------------------------------------------------

    Apparently, because Respondent had edited 19,200 du off the order 
Tru-Valu had placed the day before, the new order did not place Tru-
Valu's orders over the new CSL of 46,800 du. Tru-Valu's file offers no 
explanation for why Corona disregarded the information as to the highly 
suspicious circumstances documented in the recent site visit report and 
the most recent UR. As for the latter, it showed that 18 of the top 20 
drugs being dispensed were controlled substances, including 11 
oxycodone products, three alprazolam products, two diazepam products, 
methadone, and dilaudid. Moreover, Tru-Valu's dispensings of oxycodone 
30 mg products alone totaled 206,132 du and its dispensings of 
oxycodone 15 totaled 32,441 du. RX 2A, at 29-34. Thus, out of its total 
dispensings of 337,314 du, Tru-Valu's dispensings of oxycodone 30 alone 
comprised 61 percent of its dispensings of all prescription products, 
and its dispensings of both the 30 and 15 milligram dosages (which 
totaled 238,603 du) comprised nearly 71 percent of its total 
dispensings.
    On October 1, 5, and 13, Respondent filled orders for oxycodone 30 
in the amounts of 24,000 du, 14,400 du, and 6,000 du respectively; on 
October 1, it also filled an order for 2,400 du of oxycodone 15. GX 
10F, at 2. Upon filling the October 5 order, Respondent had shipped 
58,800 du on a rolling 30-day basis, thus exceeding the CSL of 46,800 
du. Yet the only notation in the SOMS notes is ``RWR.'' GX 15, at 113. 
The order was not reported as suspicious.
    A SOMS note of October 13, 2010 for an order placed the previous 
day states: ``order reviewed edited to 60 bottles to keep mfr csl of 
46800.'' Id. Yet on filling the October 13 order, Respondent had 
actually shipped 64,800 du on a rolling 30-day basis. Here again, while 
Tru-Valu's filled orders exceeded the CSL by 18,000 du, there is no 
evidence that Respondent contacted Tru-Valu's PIC and asked why he was 
ordering in excess of this amount.\35\
---------------------------------------------------------------------------

    \35\ The records show that several weeks later, Respondent 
contacted Tru-Valu's PIC in response to his having placed orders for 
morphine and methadone for the ``first time . . . since 2009.'' RX 
2A, at 1. The PIC stated that he ordered the drugs from Respondent 
because it had cheaper prices and Respondent obtained a new UR for 
the month of September 2010. Id. No explanation was offered as to 
why similar inquiries were not documented following the October 12 
oxycodone order that took Tru-Valu over its limit.
---------------------------------------------------------------------------

    On November 1, 2010, Tru-Valu placed orders, which Respondent 
filled, for 24,000 du of oxycodone 30 and 2,400 du oxycodone 15. GX 
10F, at 2. Thereafter, on November 8, Tru-Valu placed additional 
orders, which Respondent filled, for 14,400 du of oxycodone 30. Id. A 
note dated November 9 states: ``CH Review Business Model Re-Review'' 
followed by the initials of JS. RX 2A, at 1. Notes dated November 10 
state that the account was ``placed in non-control status permanently'' 
and that the ``account has been monitored closely on and off 
[compliance hold] monitoring business model'' and that ``the account 
was reviewed by'' the compliance committee, apparently after Respondent 
received a letter from Mallinckrodt (a manufacturer) raising ``concerns 
on the account.'' Id. An entry for the following day states that Tru-
Valu was getting ``rebates'' from a ``buying group'' and that Ms. 
Seiple told the PIC that it was on non-controlled status. Id; see also 
GX 15, at 109.
    There is no evidence that Respondent filled any more controlled 
substances thereafter. However, none of Tru-Valu's orders were ever 
reported as suspicious.
    In her declaration, Ms. Seiple asserted that Tru-Valu's PIC 
explained that its ``business model included active marketing to 
various nearby pain clinics,'' and that he ``provided the names and DEA 
. . . numbers of the doctors writing prescriptions for patients of 
those clinics.'' RX 103, at 39. She then offered the conclusory 
assertion that ``[t]hese marketing efforts accounted for the volume of 
pain medications being dispensed, and the percentage of oxycodone 
dispensed relative to other drugs.'' Id.

[[Page 55435]]

    Ms. Seiple further asserted that ``[a]fter Tru-Valu's account was 
approved, [Respondent's] SOMS system identified and held any order for 
controlled substances placed by Tru-Valu that deviated from its typical 
volume, pattern or frequency. All such orders were released only after 
review by [Respondent's] Compliance Department'' and that ``[o]n some 
occasions, the Compliance Department would request Tru-Valu to provide 
a UR as part of its review of orders that had been held.'' Id. Ms. 
Seiple's statement is misleading because the SOMS was not even in 
operation until August 2009.
    Ms. Seiple further asserted that ``[a]s a result of our ongoing due 
diligence, [Respondent] was aware of the volume of oxycodone and other 
controlled drugs being dispensed by Tru-Valu, and the percentage of 
controlled drugs dispensed relative to other drugs. [Respondent] 
specifically investigated the reason why Tru-Valu's ordering and 
dispensings patterns were as indicated on the UR's.'' Id. at 40. She 
then asserted that ``[t]he UR's and other information provided by Tru-
Valu were consistent with the pharmacy's business model as explained by 
[its PIC] and confirmed in the May 2008 site inspection. Tru-Valu 
appeared to be a full line pharmacy that was dispensing a large of 
variety of both controlled and non-controlled drugs, and that serviced 
the patients of several nearby pain management physicians.'' Id.
    However, Tru-Valu had provided the names of only five pain 
management physicians. Moreover, while it dispensed a variety of non-
controlled drugs, Ms. Seiple did not refute the DI's contention that 
``oxycodone 30 [was] being dispensed in significantly larger volume 
than any other drug; [that] the majority of the top 20 drugs dispensed 
are controlled substances; [and that there was] an absence of more 
commonly dispensed drugs by a retail pharmacy.'' GX 49B, at 20-21.
    Ms. Seiple further asserted that ``[b]ased on [Respondent's] 
extensive investigation, it determined that the orders it shipped to 
Tru-Valu were not suspicious.'' RX 103, at 41. Yet, as found above, 
Respondent repeatedly failed to comply with its policies and procedures 
when reviewing those orders that were held.
    Finally, Ms. Seiple declared that she was concerned that during the 
August 6, 2010 site visit, Respondent's inspector had observed a sign 
stating that Tru-Valu did not accept insurance for oxycodone products 
manufactured by Mallinckrodt or Actavis. Id. Ms. Seiple stated that the 
PIC explained that because he ``had received insurance cards'' from 
some patients who actually did not ``have current valid insurance 
coverage'' and ``was concerned that if [he] submitted invalid claims, 
it would jeopardize [his] relationship with insurers.'' Id. According 
to Ms. Seiple, the PIC stated that ``he placed the sign to try and 
limit the number of new patients who attempted to use insurance'' for 
oxycodone but that he did accept insurance for oxycodone from those 
patients he knew had valid insurance. Id.
    Yet this story was inconsistent with the PIC's previous explanation 
that the reason for the sign was that insurance did not pay enough. And 
even if the PIC's subsequent explanation was true, Ms. Seiple did not 
address why she did not find it concerning that the inspector had 
reported that the pharmacy had also posted signs stating that there was 
a pill limit of 180 du of oxycodone 30 (and 90 du of oxycodone 15) and 
that the patients ``must have a recent MRI report.'' Nor did Ms. Seiple 
address why she did not find it concerning that the inspector found the 
pharmacy was ``very busy'' with ``a long line of mostly younger 
people'' who were ``thin, tattooed, [and] casually dressed.'' Notably, 
even after the concerns raised during this site visit, Respondent 
continued filling Tru-Valu's orders for another three months and did 
not report a single order to DEA as suspicious.

The Drug Shoppe

    According to Respondent's due diligence file, The Drug Shoppe is a 
retail or community pharmacy located in Tampa, Florida. RX 2B, at 27, 
126. While it is unclear when The Drug Shoppe first began purchasing 
controlled substances from Respondent, the due diligence file includes 
a Dunn and Bradstreet Report dated March 28, 2008, along with printouts 
of the same date showing that Respondent verified that it had a valid 
Florida pharmacy license and DEA registration, and that its PIC had a 
valid pharmacist's license. Id. at 121-39.
    The file also includes a Schedule Drug Limit Increase Request Form 
dated March 28, 2008 and a Due Diligence Report Form dated Mar 31, 
2008. Id. at 120, 126-27. The Drug Limit Increase form shows that The 
Drug Shoppe was seeking an increase in solid dose oxycodone and noted 
that its monthly usage in February and March was ``323-192.'' Id. at 
120. The form also includes the notation: ``CSOS Report Over Limit.'' 
Id. While the form includes a section in which the account manager 
could check various exemptions that a customer could qualify for, such 
as its having been a long-term customer (i.e., more than one year), 
none of the exemptions was checked. Id.
    The Due Diligence Report noted that The Drug Shoppe had a daily 
script average of 150, that 40 percent of the prescriptions were for 
controlled substances, that 20 percent of the prescriptions were for 
schedule II drugs, and that 70 percent of the prescriptions were paid 
by insurance. Id. at 126. The Report also stated that The Drug Shoppe 
prevented doctor shopping by verifying prescriptions and that its PIC 
knew ``most of his patients,'' that its PIC knew the doctors and that 
``most are anesthesiologists,'' and that it was located ``next to [sic] 
hospital.'' Id. According to the form, the PIC had refused to fill a 
prescription for several reasons, including that a prescription was for 
``too high Qtys.'' Id. at 127.\36\
---------------------------------------------------------------------------

    \36\ The Drug Shoppe's PIC also stated that he did not fill if a 
refill was ``too early,'' if he did not know the doctor and could 
not get hold of the doctor, and if a patient ``ha[d] been to too 
many docs.'' RX 2B, at 127. He also represented that he checked the 
doctor's license, and if a doctor was ``more than 20 miles away [he] 
will visit, call or not fill.'' Id.
---------------------------------------------------------------------------

    On April 15, 2008, the Account Manager completed a second Drug 
Limit Increase Request, again indicating that The Drug Shoppe was 
seeking an increase in solid dose oxycodone, solid dose hydrocodone, 
and alprazolam. Id. at 119. A note on this form indicates that 
Respondent had ``already received'' a UR for ``all items . . . they 
fill.'' Id.
    The UR, which covered the month of February 2008, showed that The 
Drug Shoppe dispensed 181 prescriptions totaling 38,689 du of oxycodone 
30, for an average quantity of 214 du per prescription.\37\ Id. at 214-
15. It also showed that the pharmacy had dispensed 43 prescriptions 
totaling 8,239 du of oxycodone 15, for an average quantity of 192 du 
per prescription. The Drug Shoppe dispensed more than 56,600 du of 
oxycodone products (including Endocet) out of its dispensings of all 
prescription products, which totaled 165,068 du. Id. at 209, 214-15, 
218.
---------------------------------------------------------------------------

    \37\ This total includes a 240 du prescription for Roxicodone 30 
mg, a branded drug. RX 2B, at 215.
---------------------------------------------------------------------------

    The next day, Matt Harmon sent an email to The Drug Shoppe 
informing it that Respondent had reviewed its account and was 
increasing its ``purchase limit of Oxycodone solid dose products to 
25,000 doses (pills) per calendar month.'' Id. at 219. While Respondent 
held off on The Drug Shoppe's requests to increase its hydrocodone and 
alprazolam purchases, it approved the oxycodone increase before it had 
even inspected the pharmacy.

[[Page 55436]]

    On April 28, 2008, Respondent's consultant conducted a site visit 
and determined that the pharmacy was a compounding pharmacy. Id. at 27. 
While the pharmacy reported that it did not engage in internet 
business, it acknowledged filling prescriptions for five pain 
management doctors, whose names were listed on the evaluation form; 
however, there is no evidence that Respondent verified that these 
physicians were properly licensed and registered, let alone whether 
they held any specialty training or board certification in pain 
management. Id. at 27-30.
    According to the report, the pharmacy did not service nursing 
homes, hospice programs, or inpatient facilities. Id. at 29. The 
pharmacy reported that it filled 100 prescriptions per day, of which 50 
percent were for controlled substances, and that cash and insurance 
each comprised 50 percent of the payments it received. Id.
    Respondent's consultant reported that The Drug Shoppe ``appears to 
be a very professionally run pharmacy,'' which took ``exceptional care 
in secure storage of [its] controlled substances inventory.'' Id. at 
30. The consultant further noted the PIC's complaint that he was 
``finding it hard to fill some of the prescriptions presented because 
of the limitation placed on the quantities he can purchase.'' Id. at 
30-31. The consultant also obtained a copy of the pharmacy's most 
recent state inspection report, which showed no violations. Id. at 32.
    On or about August 14, 2008, Respondent approved an increase in The 
Drug Shoppe's oxycodone purchasing limit from 25,000 to 50,000 du.\38\ 
Id. at 115. Notes on a form entitled ``Limit Increase Request 
Conclusion'' state: ``Previously raised to 25k. Clean license. 
Satisfactory visit by L. Fisher,'' who was Respondent's consultant. Id.
---------------------------------------------------------------------------

    \38\ The document also indicates that Respondent set The Drug 
Shoppe's purchasing limit for hydrocodone and alprazolam at 25,000 
du for each drug. RX 2B, at 115.
---------------------------------------------------------------------------

    In April 2009, Respondent shipped to The Drug Shoppe 43,000 du of 
oxycodone 30; 10,800 oxycodone 15; 600 du of Endocet 10/650; 600 du of 
oxycodone/apap 10/325; and 200 du of oxycodone/apap 5/325, for a total 
of 55,200 du. GX 10F, at 29-33. Notwithstanding that The Drug Shoppe's 
purchasing limit was still set at 50,000 du for all oxycodone products, 
Respondent's records contain no documentation as to why it was allowed 
to exceed its purchasing limit.
    While in both May and June 2009, Respondent's shipments of 
oxycodone to The Drug Shoppe did not exceed the 50,000 du purchasing 
limit, in July it shipped 60,000 du of oxycodone 30; 1,000 du of 
Endocet 10; and 1,000 du of Endocet 5 for a total of 62,000 du. See id. 
The Drug Shoppe's due diligence file contains no explanation for why it 
was allowed to exceed the purported purchasing limit.
    On or about July 14, 2009, Respondent obtained a new UR from The 
Drug Shoppe, which covered the period of May 14 through July 14, 2009. 
Id. at 148-204. Oxycodone 30 mg was the number one drug dispensed. Id. 
at 148. Indeed, the UR showed that The Drug Shoppe had dispensed 595 
prescriptions of oxycodone 30 totaling 105,570 du, for an average of 
52,785 du per month and an average prescription size of 177 du. Id. at 
148 & 161. While The Drug Shoppe dispensed only 54 oxycodone 15 
prescriptions totaling 9,360 du (an average of 4,680 per month), the 
average prescription size was 173 du. Id. at 149-50. Including all 
formulations of oxycodone, Respondent dispensed more than 136,400 du or 
68,200 du per month.\39\
---------------------------------------------------------------------------

    \39\ As for other formulations, the UR showed that The Drug 
Shoppe dispensed 2,843 du of OxyContin 80; 600 du of OxyContin 60; 
3,394 du of OxyContin 40; and 480 du of OxyContin 20. RX 2B, at 148-
205. It also dispensed 8,886 du of oxycodone/acetaminophen (apap) 
10/325; 2,320 du of oxycodone/apap 10/650; 2,031 du of oxycodone/
apap 5/325; and 950 du of oxycodone 5 mg. Id.
---------------------------------------------------------------------------

    A Ship to Memo note dated July 28, 2009 states: ``increase accepted 
from 50k to 62k on oxy.'' GX 16, at 221. There is, however, no further 
documentation explaining the justification for the increase. During the 
month of July 2009, Respondent shipped 60,000 du of oxycodone 30 as 
well as 2,000 du of combination oxycodone products to The Drug Shoppe. 
GX 10F, at 29, 31-33.
    During August 2009, Respondent shipped to The Drug Shoppe a total 
of 60,500 du of oxycodone 30, as well as 1,000 du of Endocet 10/325 and 
500 du of oxycodone/apap 5 mg. See id. However, while the total monthly 
shipments did not exceed the recently approved 62,000 du limit, the 
SOMS had gone into effect on August 1 and on several occasions during 
the month, The Drug Shoppe's orders exceeded the CSL on a rolling 30-
day basis.
    For example, on August 13, Respondent filled an order for 1,000 du 
of Endocet 10/325, thus placing The Drug Shoppe's total of filled 
orders at 62,500 du on a rolling 30-day basis.\40\ Although the SOMS 
was supposed to place an order on hold even if it exceeded the CSL by a 
single dosage unit and thus trigger the requirements that the 
Compliance Department obtain an explanation for the order, which was 
independently verified, as well as that it obtain a new UR, the only 
notation in Respondent's file states: ``ok to ship within current 
limit.'' GX 16, at 234.
---------------------------------------------------------------------------

    \40\ The total includes orders for oxycodone 30 in the following 
amounts and on the following dates: 8,000 du on July 16; 12,000 du 
on July 28; 20,000 du on Aug. 3; 20,000 du on Aug. 7; 1,000 du on 
Aug. 10; it also includes orders for 500 du of Endocet 5 on Aug. 6; 
and 1,000 du of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.
---------------------------------------------------------------------------

    An entry dated August 20, 2009 in the Memo for Records notes: 
``order deleted over current limit compliance review[.] Hold for 
review.'' RX 2B, at 4. A subsequent entry for the same day states: 
``Requested Review of Disc Docs and File.'' Id.
    The next day, Respondent shipped 19,500 du of oxycodone 30 to the 
Drug Shoppe. GX 10F, at 29. Of note, on a rolling 30-day basis, The 
Drug Shoppe's orders totaled 74,000 du of oxycodone, with 72,500 du 
being for 30 mg tablets.\41\
---------------------------------------------------------------------------

    \41\ The total includes orders for oxycodone 30 in the following 
amounts: 12,000 du on July 28; 20,000 du on Aug. 3; 20,000 du on 
Aug. 7; 1,000 du on Aug. 10; 19,500 on Aug. 21; it also includes 
orders for 500 du of Endocet 5 on August 6 and 1,000 du of Endocet 
10 on Aug. 13. GX 10F, at 29, 32-33.
---------------------------------------------------------------------------

    An MFR entry of the same date states: ``Request Update Survey,'' 
``U/R Looks Strong + Voluminous,'' ``OK TO 62,000--oxy family,'' 
``HIV,'' ``Large # RX's For HIV Disease State,'' ``Methadone Ok'd 
@10k.'' RX 2B, at 4. Unexplained is how it was ``ok to 62,000'' when, 
with this order, The Drug Shoppe was over its CSL by more than 12,000 
du. Also, notwithstanding Respondents' representation (to the DI only 
days before) that its policy required it to independently verify the 
information it obtained from its customers, there is no evidence that 
Respondent did so with respect to The Drug Shoppe's claim that a large 
number of the prescriptions were for HIV patients.\42\
---------------------------------------------------------------------------

    \42\ The file includes a due diligence survey of the same date. 
According to the survey, The Drug Shoppe reported that it filled 160 
prescriptions per day, of which 60 percent were controlled and 40 
percent were schedule II drugs. RX 2B, at 6. The Drug Shoppe 
asserted that it declined 20 prescriptions a day, and that in 
ensuring that the doctors were exercising proper standards of care, 
it looked at the age of its patients, talked to the doctor, and 
asked about the kind of pain and reason. Id. The Drug Shoppe also 
asserted that it had stopped filling prescriptions for a certain 
physician because the doctor was ``writing too much pain med or 
staff gives run around.'' Id. However, the size of the oxycodone 30 
prescriptions that The Drug Shoppe was fillings begs the question of 
what quantity was ``too much.''
---------------------------------------------------------------------------

    In September 2009, Respondent shipped an additional 62,000 dosage 
units of oxycodone 30 mg. However, on each occasion on which the orders 
were shipped, The Drug Shoppe's orders exceeded the 62,000 CSL by a 
wide

[[Page 55437]]

margin. Specifically, on September 1, Respondent filled an order for 
17,500 du of oxycodone 30, bringing the total of the filled orders to 
79,500 du.\43\ GX 10F, at 29; 32-33. The only note pertaining to the 
order is a SOMS note indicating that Ms. Seiple released the order, the 
reason being: ``shipping under current limit of 175 bottles.'' GX 16, 
at 234. Despite the representations Respondent made to DEA regarding 
its policy for reviewing those orders held by the SOMS, there is no 
evidence that it contacted The Drug Shoppe and obtained an explanation 
for the order and a new UR. Nor did it report the order as suspicious.
---------------------------------------------------------------------------

    \43\ This total includes orders for oxycodone 30 in the 
following amounts: 20,000 du on Aug. 3; 20,000 du on Aug. 7; 1,000 
du on Aug. 10; 19,500 du on Aug. 21; it also includes 500 du of 
Endocet 5 on Aug. 6 and 1,000 du of Endocet 10 on Aug. 13. GX 10F, 
at 29, 32-33.
---------------------------------------------------------------------------

    Two days later, Respondent shipped 15,000 du of oxycodone 30; with 
this shipment, The Drug Shoppe's filled orders totaled 74,500 du on a 
rolling 30-day basis.\44\ GX 10F, at 29, 32-33. There are SOMS notes 
corresponding to two orders on this date: The first, entered by Ms. 
Seiple, states: ``shipping with reservation review with wayne''; the 
second, entered by Mr. Schulze, states: ``ok to ship under current size 
limit.'' GX 16, at 234. However, here again, there is no evidence that 
Respondent contacted The Drug Shoppe and obtained an explanation for 
the order and a new UR. Nor did it report the order as suspicious.
---------------------------------------------------------------------------

    \44\ This total includes orders for oxycodone 30 in the 
following amounts: 20,000 du on Aug. 7; 1,000 du on Aug. 10; 19,500 
du on Aug. 21; and 17,500 du on Sept. 1; it also includes 500 du of 
Endocet 5 on Aug. 6 and 1,000 du of Endocet 10 on Aug. 13. GX 10F, 
at 29, 32-33.
---------------------------------------------------------------------------

    On September 8, Respondent shipped another 15,000 du of oxycodone 
30; with this shipment, The Drug Shoppe's filled orders totaled 69,000 
du on a rolling 30-day basis.\45\ GX 10F, at 29, 32. A SOMS note 
corresponding to this date indicates that Ms. Seiple approved an order 
and states: ``ok to ship see UR on miox.'' \46\ GX 16, at 234. Here 
again, there is no evidence that Respondent contacted the pharmacy and 
obtained an explanation for the order and a new UR. Nor did it report 
the order as suspicious.
---------------------------------------------------------------------------

    \45\ This total includes orders for oxycodone 30 in the 
following amounts: 1,000 du on Aug. 10; 19,500 du on Aug. 21; 17,500 
du on Sept. 1; and 15,000 du on Sept. 3; it also includes 1,000 du 
of Endocet 10 on Aug. 13. GX 10F, at 29, 32-33.
    \46\ The last four letters of this entry could also be ``mlox.'' 
GX 16, at 234. Regardless, Respondent's records contain no 
explanation for what either miox or mlox means.
---------------------------------------------------------------------------

    On September 16, Respondent shipped another 14,500 du of oxycodone 
30; with this shipment, The Drug Shoppe's filled orders totaled 81,500 
du on a rolling 30-day basis.\47\ A SOMS note of this date states: ``ok 
to ship at current limit this order is 62k.'' GX 16, at 235. 
Unexplained is how The Drug Shoppe's order placed it at its current 
limit when its orders exceeded the CSL by 19,500 du. And here again, 
there is no evidence that Respondent contacted The Drug Shoppe to 
obtain an explanation for the order and a new UR. Nor did it report the 
order as suspicious.
---------------------------------------------------------------------------

    \47\ This total includes orders for oxycodone 30 in the 
following amounts: 19,500 du on Aug. 21; 17,500 du on Sept. 1; 
15,000 du on Sept. 3; and 15,000 du on Sept. 8.
---------------------------------------------------------------------------

    In October, Respondent shipped to The Drug Shoppe 55,200 du of 
oxycodone 30 mg; 3,600 du of oxycodone 15 mg; 600 oxycodone 20 mg; and 
2,600 du of combination oxycodone products for a total of 62,000 du. GX 
10F, at 29, 31-33. None of the orders placed The Drug Shoppe over its 
CSL.
    On November 9, Respondent shipped to The Drug Shoppe 14,400 du of 
oxycodone 30 and 1,000 du of oxycodone 10/325. Thus, on a rolling 30-
day basis, Respondent had filled orders totaling 74,700 du.\48\
---------------------------------------------------------------------------

    \48\ This total includes orders for oxycodone 30 in the 
following amounts: 18,000 du on Oct. 12; 14,400 du on Oct. 20; 7,200 
du on Oct. 23; and 14,400 du on Nov. 2; it also includes an order 
for 600 du of oxycodone 20 on Oct. 22; an order for 3,600 du of 
oxycodone 15 on Oct. 20; and orders for 300 and 800 du of Endocet 10 
on Oct. 20 and 26. GX 10F, at 29, 33-33.
---------------------------------------------------------------------------

    An MFR entry dated November 9 states: ``update UR last on file w 5/
09'' and ``called to get updated UR.'' Further notes state: ``Per Jen 
ship w/reservation'' and ``still need UR for future orders.'' RX 2B, at 
4; see also GX 16, at 236 (SOMS note: ``Ship update reservation getting 
an updated ur'').
    The next day, Respondent obtained a UR for the month of October 
2009. Id.; see also id. at 72-80, 140-146. However, the UR listed the 
drugs in alphabetical order (rather than the drugs by the quantity 
dispensed) and did not provide a figure for the pharmacy's total 
dispensings. See id. Moreover, there is no evidence that Respondent 
obtained an explanation for the order from The Drug Shoppe.
    As for the UR, it showed that The Drug Shoppe had dispensed 357 
prescriptions totaling 66,271 du of oxycodone 30 (for an average of 186 
du per prescription) and 33 prescriptions totaling 4,997 du of 
oxycodone 15 (for an average of 151 du per prescriptions). Id. at 141-
42. The UR also showed that The Drug Shoppe had dispensed 4,208 du of 
various formulations of OxyContin and extended release oxycodone,\49\ 
as well as 480 du of oxycodone 5mg and 4,650 du of combination 
oxycodone drugs (including Endocet), for a total of 80,606 du of 
oxycodone products. Id. at 77, 142.
---------------------------------------------------------------------------

    \49\ This included 21 prescriptions totaling 2,078 du of 
OxyContin 80 mg (for an average quantity of 99 du per Rx), as well 
as 26 prescriptions totaling 1,590 du of OxyContin (and oxycodone 
er) 40 mg.
---------------------------------------------------------------------------

    On November 16, Respondent filled an order for 2,400 du of 
oxycodone 30; upon filling the order, Respondent had shipped 63,900 du 
of oxycodone on a rolling 30-day basis, thus placing The Drug Shoppe's 
orders over the CSL.\50\ GX 10F, at 29. The corresponding SOMS note 
states: ``ok to ship w/reservation oxy within size for period. Current 
site visit needed.'' GX 16, at 237. There is, however, no evidence that 
Respondent contacted the pharmacy and obtained an explanation for the 
order.
---------------------------------------------------------------------------

    \50\ This total includes orders for oxycodone 30 in the 
following amounts: 14,400 du on Oct. 20; 7,200 du on Oct. 23; 14,400 
du on Nov. 2; 14,400 du on Nov. 9; 2,400 du on Nov. 12; and 2,400 du 
on Nov. 13. It also includes an order for 600 du of oxycodone 20 on 
Oct. 22; an order for 3,600 du of oxycodone 15 on Oct. 20; orders 
for 300 and 800 du of Endocet 10 on Oct. 20 and 26; and an order for 
1,000 du of oxycodone/apap 10/325 on Nov. 9. GX 10F, at 29, 32-33.
---------------------------------------------------------------------------

    The next day, Respondent filled orders for 2,400 du of oxycodone 
30; 2,400 du of oxycodone 15; 1,200 du of oxycodone 10/325; and 500 du 
of oxycodone 5/325. GX 10F, at 29, 32-33. Upon filling the orders, 
Respondent had shipped 70,400 du of oxycodone to The Drug Shoppe on a 
rolling 30-day basis, again placing its orders over the CSL.\51\
---------------------------------------------------------------------------

    \51\ This total includes orders for oxycodone 30 in the 
following amounts: 14,400 du on Oct. 20; 7,200 du on Oct. 23; 14,400 
du on Nov. 2; 14,400 du on Nov. 9; 2,400 du on Nov. 12; 2,400 du on 
Nov.13; and 2,400 du on Nov. 16. It also includes an order for 600 
du of oxycodone 20 on Oct. 22; an order for 3,600 du of oxycodone 15 
on Oct. 20; orders for 300 and 800 du of Endocet 10 on Oct. 20 and 
26; and an order for 1,000 du of oxycodone/apap 10/325. GX 10F, at 
29, 33-33.
---------------------------------------------------------------------------

    A SOMS note for this date states: ``ok to ship oxy within size for 
period see mfr.'' GX 16, at 237; see also RX 2B, at 4. (MFR note: ``ok 
to ship under current limit''). Here again, it is unexplained how this 
order could be deemed to be ``within size for period'' or ``under [the] 
current limit'' given Respondent's representation that the orders were 
reviewed on a rolling 30-day basis. Moreover, here again, there is no 
evidence that Respondent obtained an explanation for these orders from 
The Drug Shoppe. Nor did it report the orders as suspicious.
    Yet, the next day (Nov. 18), Respondent shipped an additional 3,000 
du of oxycodone 30 to The Drug Shoppe, thus bringing its rolling 30-day 
total to 73,400 du. GX 10F, at 30. The

[[Page 55438]]

corresponding SOMS note states: ``ok to ship, at 43,500 for this month, 
this order of 3,000 OXY puts them at their limit for the month.'' GX 
16, at 237.
    MFR notes state that on November 17, 2009, the committee reduced 
The Drug Shoppe's oxycodone CSL by 25 percent to 46,500 du. Id. at 3; 
GX 16, at 221 (Ship to Memo). However, here again, there is no 
explanation as to why Respondent ignored that The Drug Shoppe's orders 
exceeded the CSL on rolling 30-day basis by nearly 27,000 du and failed 
to obtain an explanation for the orders.
    While during November 2009, Respondent limited its shipments of 
oxycodone to 46,500 du,\52\ in December it shipped 58,600 du of 
oxycodone 30 mg, as well as 1,200 du of Endocet 10/325 and 200 du of 
oxycodone/apap 7.5/325, for a total of 60,000 du. GX 10F, at 30, 32-33. 
Indeed, as early as December 16, The Drug Shoppe's orders exceeded the 
new CSL on a rolling 30-day basis when Respondent filled an order for 
12,000 du of oxycodone 30, thus bringing the total filled orders to 
51,700 du.\53\ GX 10F, at 29-33. The SOMS note for this order states: 
``ok to ship-file current-oxy @42200 w/this order.'' GX 16, at 238. 
Here again, there is no evidence that Respondent contacted the pharmacy 
and obtained an explanation for the order. Nor did it obtain a UR for 
the month of November. And it did not report the order as suspicious.
---------------------------------------------------------------------------

    \52\ The shipments included 41,400 du of oxycodone 30; 2,400 du 
of oxycodone 15; 2,200 of oxycodone/apap 10/325; and 500 du of 
oxycodone/apap 5/325. GX 10F, at 29-33.
    \53\ The total includes orders for oxycodone 30 of 2,400 du on 
Nov. 17; 3,000 du on Nov. 18; 4,800 du on Dec. 3; 9,600 du on Dec. 
8; 7,200 du on Dec. 10; 7,200 du on Dec. 11; and 12,000 du on Dec. 
16. It also includes orders filled on Nov. 17 for 2,400 du of 
oxycodone 15; 500 du of oxycodone 5; and 1,200 du of oxycodone 10/
325; and orders filled on Dec. 7 for 1,200 du of oxycodone 10/325 
and 200 du of oxycodone 7.5/325. GX 10F, at 29-33.
---------------------------------------------------------------------------

    An MFR note for Dec. 23 states: ``Order for 15,500 Oxy 30, already 
at their . . . CSL 46,500[.] Called to let customer know order will be 
deleted, customer said that Rep said their allotment was at 62,000[.] 
Said that they will call their sales rep. Spoke to Laurie.'' RX 2B, at 
3.\54\ This order placed The Drug Shoppe's oxycodone orders at 62,000 
on a rolling 30-day basis (as well as on a calendar-month basis) and 
thus exceeded the CSL.\55\ Yet Respondent did not obtain a new UR.
---------------------------------------------------------------------------

    \54\ A later MFR entry of the same date states: ``Shipped w/
reservation W OK. See email from Diane per Wayne.'' RX 2B, at 3. The 
due diligence file does not, however, contain the email and it is 
unclear whether this entry applies to this order or the order for 
13,500 du of oxycodone 30 that shipped the following day.
    \55\ The total includes orders for oxycodone 30 of 4,800 du on 
Dec. 3; 9,600 du on Dec. 8; 7,200 du on Dec. 10; 7,200 du on Dec. 
11; 12,000 du on Dec. 16; and 4,300 du on Dec. 17; it also includes 
orders filled on Dec. 7 for 1,200 du of oxycodone 10/325 and 200 du 
of oxycodone 7.5/325. GX 10F, at 29-33.
---------------------------------------------------------------------------

    Moreover, the next day, Respondent shipped 13,500 du of oxycodone 
30 to The Drug Shoppe. GX 10F, at 30. On filling this order, Respondent 
had shipped 60,000 du of oxycodone since December 3, with the 30 mg 
dosage accounting for 58,600 du, and The Drug Shoppe had again exceeded 
the CSL. GX 10F, at 30, 32-33. The only SOMS note for December 24 does 
not even appear to pertain to the order as it states: ``ok to ship-
hydro @7,700. for period with this order.'' GX 16, at 238. Consistent 
with the SOMS note, the Government's evidence shows that Respondent 
filled orders for 2,000 du of combination hydrocodone drugs on this 
date.\56\ GX 10F, at 35.
---------------------------------------------------------------------------

    \56\ There is a SOMS note for December 23, 2009 by Ms. Seiple, 
which states: ``shipping with reservation see mfr.'' GX 16, at 238.
---------------------------------------------------------------------------

    Even assuming that Respondent relied on the explanation it had 
obtained the day before, the record is devoid of an explanation as to 
why the CSL was ignored and the order was shipped. And here again, 
Respondent did not obtain a new UR.
    On nine occasions during January 2010, Respondent filled orders for 
oxycodone products, which repeatedly placed The Drug Shoppe's orders 
above the CSL of 46,500. Indeed, several of these orders even placed 
The Drug Shoppe above the previous CSL of 62,000 du. And as explained 
below, while on or about January 25, The Drug Shoppe's oxycodone CSL 
was raised to 60,000 du, GX 16, at 221; four days later, Respondent 
filled an order for 15,000 du of oxycodone, notwithstanding that the 
order placed its total shipments on a rolling 30-day basis at 75,000 
du.
    More specifically, on January 4, Respondent filled an order for 
6,000 du of oxycodone 30, thus placing The Drug Shoppe's filled orders 
on a rolling 30-day basis at 61,200 DU. GX 10F, at 30. Yet the 
corresponding SOMS note merely states ``ok to ship--oxycodone @6k with 
this order.'' GX 16, at 238.
    The next day, Respondent filled an order for 9,600 du of oxycodone 
30, thus placing The Drug Shoppe's filled orders at 70,800 du on a 
rolling 30-day basis. GX 10F, at 30. While there are SOMS notes on this 
date for two orders, one stating ``ok to ship, under the CSL,'' the 
other ``ok to ship, frequency not excessive,'' what is clear \57\ is 
that there is no evidence that Respondent contacted The Drug Shoppe and 
obtained an explanation for the order. Nor did it obtain a new UR.
---------------------------------------------------------------------------

    \57\ Neither of the notes identifies the drug that was ordered. 
See GX 16, at 238.
---------------------------------------------------------------------------

    On January 7, Respondent filled another order for 9,600 du of 
oxycodone 30 (and 100 du of Endodan 4.8/325), thus placing The Drug 
Shoppe's filled orders at 69,500 du on a rolling 30-day basis. GX 10F, 
at 30, 34. Here again, there are SOMS notes for two orders on this 
date, both of which refer to oxycodone. The first states: ``ok to ship 
file current this order for Oxy puts them @25,200 for Jan.'' GX 16, at 
239. The second note states: ``ok to ship-file current-oxycodone 
@15,700. w/this order for Jan-frequency @29/31.'' Id.
    Here again, there is no evidence that Respondent contacted The Drug 
Shoppe and obtained an explanation for the order. Nor did it obtain a 
new UR.
    On January 12, Respondent filled orders for 500 du of oxycodone 5 
and 100 du of oxycodone 7.5/500, thus placing The Drug Shoppe's filled 
orders at 55,700 du on a rolling 30-day basis and above the 46,500 du 
CSL. GX 10F, at 33. A SOMS note dated Jan. 13, which appears to discuss 
the order, states: ``ok to ship under csl for oxy 25,900 as of 1/13/
10.'' \58\ Here again, there is no evidence that Respondent contacted 
The Drug Shoppe and obtained an explanation for the order. Nor did it 
obtain a new UR.
---------------------------------------------------------------------------

    \58\ While the dates of the order and the SOMS note do not 
match, this was not unusual. Moreover, The Drug Shoppe did not order 
any oxycodone on January 13, see GX 16, at 252 (showing that only 
non-controlled drugs ordered on this date); and the total referred 
to in the SOMS note of 25,900 equals the total of The Drug Shoppe's 
January oxycodone orders through that date.
---------------------------------------------------------------------------

    On January 13, 2010, Jeffrey Chase, an employee of Respondent, 
conducted a site visit at The Drug Shoppe. In multiple places on his 
reports, Mr. Chase noted that the pharmacy's dispensing ratio of 
controlled to non-controlled drugs was 40 percent for controlled drugs 
and that this was ``a little high.'' RX 2B, at 21, 24. While Mr. Chase 
noted that The Drug Shoppe ``appears to be a well run pharmacy,'' he 
recommended that ``we need a utilization report to compare to site 
visit.'' Id. at 21.
    On January 20, Mr. Corona reviewed Mr. Chase's recommendation. Id. 
However, as the evidence shows, Respondent did not obtain a new UR for 
another five months. Nor did it compare the utilization report it had 
last obtained with The Drug Shoppe's representation as to its 
dispensing ratio, as recommended by Mr. Chase.
    The day after the site visit, Respondent filled orders for 9,600 du 
of oxycodone and 1,000 du of oxycodone

[[Page 55439]]

10/325, thus bringing The Drug Shoppe's total of filled orders to 
66,300 du on a rolling 30-day basis. GX 10F, at 30, 32. The SOMS note 
for the transaction states: ``ok to ship under csl for Oxy 36500 with 
this order frequency not excessive.'' GX 16, at 239. Of course, the 
order was not under the CSL, and here again, there is no evidence that 
Respondent contacted The Drug Shoppe to obtain an explanation for the 
order or a new UR.
    On January 18, Respondent filled an order for 9,600 du of oxycodone 
30, and on January 19, it filled orders for 9,600 du of oxycodone 30, 
900 du of oxycodone 10/325, and 500 du of oxycodone 5. GX 10F, at 30, 
32-33. Upon Respondent's filling of the January 18 order, The Drug 
Shoppe's filled orders totaled 59,600 du, and upon its filling of the 
January 19 orders, The Drug Shoppe's filled orders totaled 70,600 du. 
Yet the SOMS note for the January 18 order states: ``ok to ship, under 
the CSL of 46,500 on Oxy, this order puts them at 46,100 for the 
month.'' GX 16, at 239. As for the January 19 orders, only one of the 
three SOMS entries contains a note and the name of a reviewing 
employee. The note states: ``ok to ship order reviewed by Jen.'' Id.
    Here again, there is no evidence that Respondent contacted The Drug 
Shoppe and obtained an explanation for either the January 18 or 19 
orders. Nor did it obtain a new UR.
    On January 23, The Drug Shoppe placed an order for 2,900 du of 
oxycodone 30 and on January 25, Respondent filled the order, thus 
placing The Drug Shoppe's total filled oxycodone orders at 60,000 du on 
a rolling 30-day basis.\59\ GX 16, at 239; GX 10F, at 30. The SOMS note 
for the order states: ``ok to ship-oxycodone @60k for current period.'' 
GX 16, at 239.\60\ A January 25 MFR entry notes that the ``oxycodone 
@57,100--requesting 2,900--more would place @60 k for period'' and that 
``Per Jen Oxy @60k.'' RX 2B, at 3; see also GX 16, at 221 (Ship to Memo 
dated 1/25/10 with subject of ``oxycodone limit''; memo states 
``currently set @60k for a period'').
---------------------------------------------------------------------------

    \59\ The order was apparently placed on a Saturday and not 
shipped until the following Monday.
    \60\ Through the first 25 days of January 2010, Respondent 
shipped orders totaling 56,900 du of oxycodone 30; 1,900 du of 
oxycodone/apap 10/325; 100 du of both Endocet 7.5/500 and Endodan; 
and 1,000 du of Endocet 5 mg, thus bringing its total shipments of 
oxycodone to The Drug Shoppe to 60,000 du. See GX 10F, at 30, 32-33.
---------------------------------------------------------------------------

    Here again, there is no evidence that Respondent contacted The Drug 
Shoppe and obtained an explanation for the order. Nor did it obtain a 
new UR. Of further note, none of these documents contain any 
explanation for why Ms. Seiple approved the increase in the oxycodone 
CSL.
    Notwithstanding the purportedly new oxycodone limit of 60,000 du, 
on January 29, Respondent shipped an additional 15,000 du of oxycodone 
30 mg. Upon Respondent's filling of the order, The Drug Shoppe's filled 
orders totaled 75,000 du on a rolling 30-day (and monthly) basis. GX 
10F, at 30-33.
    An MFR note (date Jan. 29) acknowledged that The Drug Shoppe was 
``already at 60 k this month need to review w/Jen.'' RX 2B, at 3. A 
note in the Ship to Memos (which is actually dated two days before the 
above note) states: ``OK to ship controls requested up to current UR if 
supported.'' GX 16, at 221. SOMS notes for two orders (which are dated 
January 29) and made by Ms. Seiple state: ``rele3ase [sic] order 
supported by ur plus 10% committee ok'' and ``release order supported 
by ur.'' GX 16, at 240. And an MFR note dated five days later (February 
3), which bears Ms. Seiple's initials, states: ``Ship to UR per 
committee review per company policy.'' RX 2B, at 3. Here again, even 
though the order clearly placed The Drug Shoppe's orders over the new 
increased CSL, there is no evidence that Respondent contacted the 
pharmacy to obtain an explanation for why it needed still more 
oxycodone and to obtain a new UR.
    On February 1, Respondent shipped 9,600 du of oxycodone to The Drug 
Shoppe. GX 10F, at 30. On filling the order, Respondent had shipped 
84,600 du of oxycodone to The Drug Shoppe on a rolling 30-day basis and 
had thus exceeded the CSL, whether it was set at 60,000 du as per the 
January 25 note or based on the highest monthly total within the last 
six months, this being the January total of 75,000 du.
    Yet the SOMS note for the order merely states: ``ok to ship jen 
reviewed 30 day rolling for oxy.'' GX 16, at 240. Here again, there is 
no evidence that Respondent contacted The Drug Shoppe to obtain an 
explanation for the order and a new UR. Nor did Respondent report the 
order as suspicious.
    The next day, Respondent shipped 2,400 du of oxycodone 15 to The 
Drug Shoppe, thus bringing the rolling 30-day total of the filled 
orders to 87,000 du. GX 10F, at 31. There are two SOMS notes which are 
potentially applicable to the order: One, by Ms. Seiple, stating 
``release order within the csl,'' and the second, by Mr. Schultze, 
stating ``ok to ship frequency not excessive.'' GX 16, at 240. In any 
event, here again, there is no evidence that Respondent contacted The 
Drug Shoppe and obtained an explanation for the order and a new UR.
    On February 13 (a Saturday), The Drug Shoppe placed an order for 
12,000 du of oxycodone 30 and 600 du of oxycodone 10/325. GX 16, at 
240; GX 10F, at 30, 32. On filling these orders (on February 15), 
Respondent had shipped 63,100 du of oxycodone to The Drug Shoppe on a 
rolling 30-day basis.
    While it is unclear whether The Drug Shoppe's CSL was 60,000 du or 
75,000 du, the orders were nonetheless held for review by the SOMS for 
some reason. GX 16, at 240. Two SOMS notes dated February 13, state: 
``ok to ship oxy and methadone [sic] under csl'' and ``ok to ship with 
reservations.'' Id. As explained previously, Respondent's Policy 6.2 
imposed the same obligations of obtaining an explanation for the order, 
which was then independently verified, and obtaining a new UR, 
regardless of the reason the order was held. See RX 78, at 32. Yet none 
of these steps were taken during the review of this order.
    On February 18, Respondent shipped 9,600 du of oxycodone 30; 2,400 
du of oxycodone 15; and 1,000 du of oxycodone 10/325. GX 10F, at 30-32. 
According to the SOMS notes, the order was held but subsequently 
released, the reason documented being: ``ok to ship oxy under csl and 
frequency not excessive.'' GX 16, at 240. Again, there is no evidence 
that Respondent contacted The Drug Shoppe and obtained a reason for the 
order. Nor did it obtain a new UR.
    So too, on February 25, Respondent filled an order for 3,600 du of 
oxycodone 15. GX 10F, at 31. While the order was held by the SOMS, it 
was released with the following reasons provided: ``ok to ship 
frequency not excessive-oxycodone within csl for period.'' GX 16, at 
241. Again, there is no evidence that Respondent contacted The Drug 
Shoppe and obtained a reason for the order. Nor did it obtain a new UR.
    Likewise, through the ensuing months, The Drug Shoppe placed 
multiple orders for oxycodone products that were held by the SOMS. See 
GX 16, at 241. Even if these orders did not place The Drug Shoppe's 
orders over the CSL but were held because they were of either unusual 
frequency or unusual pattern, the evidence still shows that Respondent 
released numerous orders without having contacted The Drug Shoppe to 
obtain an explanation for the orders, which it then verified, and that 
it rarely obtained a new UR. See GX 16, at 241-42, 222-32.
    In March, Respondent shipped 55,200 du of oxycodone 30 mg; 2,400 du 
of

[[Page 55440]]

oxycodone 15 mg; and 4,500 du of various oxycodone combination 
products, for a total of 62,100 du. GX 10F, at 30-34. Of note, a SOMS 
note dated March 22 (which corresponds to an order for 600 du of 
oxycodone 10/325) states: ``ok to ship, size not excessive on OXY, CSL 
is 46,500, this order is for 600. Putting them at 44700 for the 
month.'' GX 16, at 242.
    And on March 30, Respondent filled an order for 16,800 du of 
oxycodone 30. GX 10F, at 30. On filling this order, Respondent had 
shipped 62,700 du of oxycodone on a rolling 30-day basis and thus The 
Drug Shoppe's orders exceeded both the CSL referred to in the March 
22nd SOMS note and the CSL referred to in the January 25 Ship to Memos 
and MFR notes.\61\ A SOMS note for the order states that it was 
released because ``ur on file supports oxy order.'' GX 16, at 222. 
However, the most recent UR was from October 2009. Moreover, once 
again, Respondent failed to contact The Drug Shoppe and inquire as to 
why it was ordering in excess of its CSL and obtain a new UR.
---------------------------------------------------------------------------

    \61\ There were several other instances in which The Drug 
Shoppe's orders on a rolling 30-day basis may have placed it over 
the CSL, including on March 11, 15, and 19, when the orders totaled 
60,600 du, 60,900 du and 61,100 du. However, it remains unclear 
whether The Drug Shoppe's oxycodone CSL was set at 60,000 du, 75,000 
du, or 46,500 du.
---------------------------------------------------------------------------

    On four occasions in April, The Drug Shoppe's filled oxycodone 
orders exceeded 60,000 du on a rolling 30-day basis including April 2 
(rolling total of 60,600 du); April 5 (rolling total 70,200 du); April 
7 (rolling total 70,400 du); and April 9 (rolling total 67,500 du). 
SOMS notes indicate that several of these orders were held for review. 
GX 16, at 222. However, each order was released, with the reasons 
provided being that the order was ``within csl for period'' and/or 
``frequency was not excessive.'' Id. Notably, notwithstanding that the 
orders were held, there is no evidence that Respondent contacted The 
Drug Shoppe to obtain an explanation for the order and a new UR.
    Likewise, in May, The Drug Shoppe's filled oxycodone orders totaled 
63,300 du (on May 7); 64,900 du (on May 18); 73,000 du (May 19); and 
60,600 du (May 26) on a rolling 30-day basis. The MFRs contain a note 
dated May 7, 2010, after The Drug Shoppe had placed 4 orders, each for 
9,600 du of oxycodone 30, within the first seven days of the month, 
apparently because this was an unusual pattern. See GX 10F, at 30. 
While Respondent contacted The Drug Shoppe and documented that it had 
not ordered for a week and a half because an employee named Laurie had 
been out for two weeks and was ``stocking back up,'' RX 2B, at 2; once 
again, Respondent did not obtain a UR. Yet the SOMS note for the order 
states: ``ok to ship UR supports Oxy order puts thm [sic] @39,500--5/
7.'' \62\ GX 16, at 223. In total, during May 2010, Respondent shipped 
to The Drug Shoppe 57,600 du of oxycodone 30 mg; 1,200 du of oxycodone 
15 mg; and 1,800 du of oxycodone combination products, for a total of 
60,600 du. GX 10 F, at 30-33.
---------------------------------------------------------------------------

    \62\ As for the May 18 order (9,600 du of oxycodone 30 and 1,200 
du of oxycodone 15, see GX 10F, at 30-31), there are three entries 
in the SOMS notes for this date, two of which contain the name of a 
reviewer and a notation. These notations simply state: ``Ok to ship 
under CSL'' and ``RELEASE ORDER SUPPORTED BY UR.'' GX 16, at 223. 
However, it is unclear which of the three entries pertain to this 
order.
    There are two SOMS notes dated May 19, which correspond to 
shipments of 9,000 du of oxycodone 30 and 300 du of oxycodone 10/
325. See GX 10F, at 30, 33. However, only one includes the name of 
the reviewer (J. Seiple); it states ``rwr.'' GX 16, at 224. So too, 
there are two entries dated May 26, but only one contains the name 
of a reviewer; it states ``ok to ship under CSL UR on File is from 
OCT.'' Id.
---------------------------------------------------------------------------

    In June 2010, The Drug Shoppe placed orders for 9,600 du of 
oxycodone 30 mg on June 1, 3, 8, 14, and 15. GX 10, at 30; RX 2B, at 2. 
According to the MFR and SOMS notes, on June 15, 2010, an order for 96 
bottles of oxycodone 30 mg was edited to 54 bottles and the 
``difference of 42 bottles can be place[d] for review after June 
20th.'' GX 16, at 225; see also RX 2B, at 2. As a result, The Drug 
Shoppe's oxycodone orders on a rolling 30-day basis totaled 67,600 
du.\63\ However, Respondent contacted The Drug Shoppe and obtained a UR 
for the month of May 2010. RX 2B, at 2.
---------------------------------------------------------------------------

    \63\ This total includes orders for 9,600 du of oxycodone 30 on 
May 18 and 19, June 1, 3, 8, and 14, as well as orders for 9,000 du 
on May 19 and 600 du on May 26. GX 10F, at 30, 32-33. The total also 
includes orders for 1,200 du of oxycodone 15 on May 18 and June 1; 
orders for 400 and 600 Endocet 10/625 on May 17 and June 10; orders 
for 300 and 600 oxycodone/apap 10/325 on May 19 and June 1, and an 
order for 300 oxycodone 5/325 on June 10. Id.
---------------------------------------------------------------------------

    The UR shows that during May 2010, The Drug Shoppe dispensed 316 
prescriptions totaling 64,250 du of oxycodone 30 mg, an average of 203 
du per prescription. RX 2B, at 66. As for oxycodone 15 mg, the UR 
showed that The Drug Shoppe dispensed 29 prescriptions totaling 3,524 
du, an average of 121.5 du per prescription. Id. It also showed that 
The Drug Shoppe dispensed 18 prescriptions of oxycodone/apap 10/325 mg 
totaling 2,851 du, an average of 158 du per prescription. Id. at 60 & 
66.
    On June 25, Respondent shipped an additional 6,000 du of oxycodone 
30 mg to The Drug Shoppe. GX 10F, at 30. Yet a SOMS note of the same 
date attributed to Ms. Seiple states: ``oxy edited to zero per csl and 
policy.'' GX 16, at 225. Respondent offered no evidence to explain this 
inconsistency.
    Moreover, SOMS notes and an MFR note dated June 28 show that The 
Drug Shoppe placed an order for 3,600 du of oxycodone but that the 
order was deleted. Id.; see also RX 2B, at 2. A further entry in the 
MFR notes of the same date states: ``can place another order after 6/
30/10.'' RX 2B, at 2. However, the order was not reported as 
suspicious. During the month of June 2010, Respondent shipped a total 
of 49,800 du of oxycodone 30 mg, 1,200 du of oxycodone 15 mg, and 1,500 
du of combination oxycodone products, for a total 52,500 du. GX 10 F, 
at 30, 32-33.
    In July 2010, Respondent shipped to The Drug Shoppe 9,600 du of 
oxycodone 30 mg on the 1st, 6th, 12th and 19th of the month, as well as 
2,400 and 1,600 du of the same dosage on July 15th and July 26th. Id. 
at 30. According to a SOMS note dated July 19, The Drug Shoppe's 
oxycodone CSL was 42,420 du. GX 16, at 226. Yet as of July 19, 
Respondent had filled orders totaling 46,800 du of oxycodone 30 on a 
rolling 30-day basis, placing it over the CSL.\64\ A further SOMS note 
dated July 26 states: ``rwr oxy edited to meet CSL for July.'' Id. Here 
again, there is no evidence that Respondent contacted The Drug Shoppe 
regarding either the July 19 or 26 orders or obtained a new UR. Nor did 
it report either order to DEA as suspicious.
---------------------------------------------------------------------------

    \64\ This includes the June 25 order for 6,000 du.
---------------------------------------------------------------------------

    In August 2010, Respondent shipped 40,000 du of oxycodone 30 mg, 
2,400 oxycodone 15 mg, and 700 du of combination oxycodone products, 
totaling 43,100 du. Here again, on multiple occasions, The Drug 
Shoppe's oxycodone exceeded the CSL as referred to in the July 19 SOMS 
note. Specifically, on August 4, Respondent filed an order for 1,200 du 
of oxycodone 30, placing The Drug Shoppe's orders at 43,600 du on a 
rolling 30-day basis.\65\ GX 10F, at 31. Yet a SOMS note of the same 
date establishes that the order was approved, the reason noted as ``oxy 
under csl.'' GX 16, at 227. Here again, there is no evidence that 
Respondent contacted The Drug Shoppe and obtained an explanation for 
the order. Nor did it obtain a new UR.
---------------------------------------------------------------------------

    \65\ On August 2, Respondent had filled an order for 9,600 du of 
oxycodone 30, which when added to the orders filled on July 6, 12, 
15, 19, and 26, totaled 42,400 du. GX 10F, at 30-31. Thus, the Aug. 
4 order placed The Drug Shoppe at 43,600 du on a rolling 30-day 
basis.
---------------------------------------------------------------------------

    So too, on August 9, Respondent filled an order for 9,600 du, 
bringing The Drug Shoppe's total orders to

[[Page 55441]]

44,800 on a rolling 30-day basis.\66\ GX 10F, at 31. The SOMS note for 
the order states: ``rwr Oxy within buying pattern leaves 20820.'' GX 
16, at 227. Here again, there is no evidence that Respondent contacted 
The Drug Shoppe and obtained an explanation for the order. Nor did it 
obtain a new UR.
---------------------------------------------------------------------------

    \66\ This total includes the orders from July 12 forward, 
including an order for 1,200 du of oxycodone 30 placed on August 5.
---------------------------------------------------------------------------

    On August 23, Respondent filled orders for 8,400 du of oxycodone 
30; 1,200 du of oxycodone 15; and 200 du of Endocet 7.5/500; the next 
day, it filled orders for 300 du of oxycodone 10/325 and 200 du of 
Endocet 7.5/500. GX 10F, at 31-33. On their respective dates, the 
orders placed The Drug Shoppe's orders at 44,200 and 44,700 du on a 
rolling 30-day basis.\67\ A SOMS note for August 23 states: ``oxy at 
42,400 as of 8/20/10--at csl, need reviewed [sic] if order [sic] 
again'' and ``ok to ship, size not excessive on 2 ENDO 7.5/500 under 
CSL of 42420 this order puts them at 33000 for the month.'' GX 16, at 
227.
---------------------------------------------------------------------------

    \67\ These totals include orders on August 16 for 9,600 du of 
oxycodone 30, and orders on August 18 for 400 du of oxycodone 30 and 
1,200 du of oxycodone 15. GX 10F, at 31-32.
---------------------------------------------------------------------------

    A note in the MFR of the same date states: ``The UR Supports--Qty 
60 Endo 7.5-500, Endo 10/325 = 2371, Oxy 15mg 3404, Oxy 30 61285 mal + 
Oxy 30mg Act--2965 totaling 70,085.'' RX 2B, at 1. A further note in 
the same entry states: ``CSL is already @42,600.'' However, as found 
above, The Drug Shoppe's August 23 orders placed it at 44,200 du, 1,800 
du over its CSL, and its orders for the month were already nearly 
10,000 du more than the 33,000 du figure used to justify shipping the 
orders.
    As for the August 24 orders, the SOMS notes show that Ms. Seiple 
released the order. As for Ms. Seiple's reason, the SOMS note merely 
states: ``rwr.'' GX 16, at 227.\68\ Yet for both days' orders, 
Respondent made no inquiry as to why The Drug Shoppe was ordering in 
excess of the CSL and a new UR (the UR in the file being three months 
old) was not obtained.
---------------------------------------------------------------------------

    \68\ According to Mr. Corona, if an order placed a customer even 
one pill over its CSL, the SOMS placed the order on hold and 
subjected it to review. Tr. 1000-01.
---------------------------------------------------------------------------

    In September 2010, Respondent filled orders for 43,200 du of 
oxycodone 30 mg and 1,800 du of three oxycodone combination products, 
for a total of 45,000 du. GX 10F, at 31-33. Moreover, on each date 
during the month that Respondent filled The Drug Shoppe's oxycodone 
orders, The Drug Shoppe exceeded the CSL of 42,400 du that was 
documented in the SOMS and MFRs.
    On September 1, Respondent filled orders for 9,600 du of oxycodone 
30 and 300 du of oxycodone 10/325, placing The Drug Shoppe's orders on 
a rolling 30-day basis at 43,400 du. The next day, Respondent filled an 
order for 300 du of oxycodone 5, placing The Drug Shoppe's orders on a 
rolling 30-day basis at 43,700 du.\69\ Both orders were released with 
reservation because the orders were ``within [the] monthly buying 
pattern.'' GX 16, at 228. However, in neither case did Respondent 
contact The Drug Shoppe and obtain an explanation for the order and a 
new UR.
---------------------------------------------------------------------------

    \69\ These totals include orders for 1,200 du on Aug. 4 and 5; 
9,600 du on Aug. 9 and 16; 400 du on Aug. 18; and 8,400 du on Aug. 
23; it also includes orders for 1,200 du of oxycodone 15 on Aug. 18 
and 23; 300 du of oxycodone 10/325 on Aug. 24; and 200 du of 
oxycodone 7.5/500 on Aug. 23 and 24. GX 10F, at 31-34. The total of 
the orders as of Sept. 2 includes the 9,600 du of oxycodone 30 and 
300 du of oxycodone 10/325. Id.
---------------------------------------------------------------------------

    On September 7, Respondent filled orders for 9,600 du of oxycodone 
30; 600 du of oxycodone 10/325; and 200 du of oxycodone 7.5/325; 
bringing The Drug Shoppe's rolling 30-day total to 51,700 du. GX 10F, 
at 31, 33. Two SOMS notes of the same date made by Ms. Seiple state: 
``rwr over 30 days under csl supported by u r dd complete'' and 
``rwr.'' GX 16, at 228. However, with the order, The Drug Shoppe was 
more than 9,000 du over the CSL as documented in Respondent's 
records.\70\ Moreover, Respondent had not obtained a new UR in three 
months, and there is no evidence that it contacted The Drug Shoppe and 
obtained an explanation for its order.
---------------------------------------------------------------------------

    \70\ In addition to the previous references that the CSL had 
been set at 42,420 du, a SOMS entry for October 26 also states that 
the CSL was set at 42,420. GX 16, at 230.
---------------------------------------------------------------------------

    On September 13, Respondent filled another order for 9,600 du of 
oxycodone 30; this order brought The Drug Shoppe's rolling 30-day total 
to 52,100 du.\71\ GX 10F, at 31. While the SOMS notes show that three 
orders were placed that day, only one of the orders lists the name of a 
reviewer, Ms. Seiple, who simply wrote ``rwr.'' GX 16, at 228. Again, 
there is no evidence that Respondent contacted The Drug Shoppe to 
obtain an explanation for the order and a new UR. Nor did it report the 
order as suspicious.
---------------------------------------------------------------------------

    \71\ This total includes a Sept. 8 order for 400 du of oxycodone 
10/325. GX 10F, at 33.
---------------------------------------------------------------------------

    So too, on September 20, Respondent filled an order for 9,600 du of 
oxycodone 30, bringing The Drug Shoppe's rolling 30-day total to 50,500 
du, and on September 23, it filled an order for 4,800 du of oxycodone 
30, bring The Drug Shoppe's rolling 30-day total to 55,300 du. GX 10F, 
at 31. While the SOMS notes include two entries for Sept. 20, only one 
of them lists the name of a reviewer, again Ms. Seiple, who wrote: 
``rwr under csl.'' GX 16, at 228. Likewise, the SOMS entry for the 
September 23 order again lists Ms. Seiple as the reviewer and provides 
the reason as: ``rwr.'' \72\ Id. Again, there is no evidence that 
Respondent contacted The Drug Shoppe to obtain an explanation for 
either order and a new UR.\73\ Nor did it report the orders as 
suspicious.
---------------------------------------------------------------------------

    \72\ While there is a second SOMS entry dated Sept. 23, the 
accompanying note shows that it was for ``[h]ydro'' and not 
oxycodone. GX 16, at 228.
    \73\ Of further note, there are no entries in either the Ship to 
Memos or the MFRs for any of September orders. See GX 16, at 221; RX 
2B, at 1-2.
---------------------------------------------------------------------------

    In October 2010, Respondent filled orders from The Drug Shoppe 
totaling 39,600 du of oxycodone 30 and 1,700 du of three oxycodone 
combination products, for a total of 41,300 du. GX 10F, at 31, 33-34. 
Here again, on four occasions, Respondent filled orders that placed The 
Drug Shoppe over the 42,420 du CSL.
    Specifically, on October 4, Respondent filled an order for 9,600 du 
of oxycodone 30, bringing The Drug Shoppe's rolling 30-day total to 
44,400 du. GX 10F, at 31, 33. While a SOMS note lists the name of the 
reviewer, it then merely states: ``oxy at 9600 10/4/10,'' ignoring that 
the order placed The Drug Shoppe over its CSL. GX 16, at 229.
    On October 7, Respondent filled an order for 600 du of oxycodone 5, 
bringing The Drug Shoppe's rolling 30-day total to 45,000 du. GX 10 F, 
at 33. Here again, while the SOMS note shows that the order was 
reviewed, it then states: ``rwr Oxy within monthly buying pattern,'' 
ignoring that the order placed The Drug Shoppe over its CSL. GX 16, at 
229.
    On October 11 Respondent filled an order for 9,600 du of oxycodone 
30, bringing The Drug Shoppe's rolling 30-day total to 43,800 du. GX 
10F, at 31. While the SOMS notes show that the order was reviewed, it 
was released with the reviewer noting only that: ``oxy at 19800 as of 
10/11/10,'' again ignoring that the order placed The Drug Shoppe over 
its CSL. GX 16, at 229.
    On October 18, Respondent filled orders for 9,600 du of oxycodone 
30 and 200 du of Endocet 10/650, bringing The Drug Shoppe's rolling 30-
day total to 44,300 du and over the CSL. GX 10F, a 31-33. While both 
orders were reviewed, the reviewer simply noted ``oxy at 29700 10/18/
10'' (upon review of the oxycodone 30 order) and ``oxy at 29900 2nd 
order today 10/18/10'' (upon

[[Page 55442]]

review of the Endocet order). GX 16, at 229.
    Of note, there is no evidence that Respondent contacted The Drug 
Shoppe to obtain an explanation for any of these orders, let alone that 
it independently verified any such explanation. Nor, in reviewing these 
orders, did Respondent obtain a new UR.
    During November, Respondent filled orders from The Drug Shoppe 
totaling 10,800 du of oxycodone 30 and 1,300 du of combination 
oxycodone products.\74\ GX 10F, at 31, 33. To be sure, this marked a 
substantial decrease in the amount of oxycodone Respondent shipped to 
The Drug Shoppe.
---------------------------------------------------------------------------

    \74\ Evidence in the record suggests that the reduction in the 
orders Respondent filled during this month was ``due to allocation 
issues.'' GX 16, at 221. There is some evidence that late in a year, 
there could be a supply shortage of oxycodone.
---------------------------------------------------------------------------

    However, on November 1, Respondent filled an order for 9,600 du of 
oxycodone 30, bringing The Drug Shoppe's total of filled orders to 
50,900 du on a rolling 30-day basis.\75\ GX 10F, at 31. While the SOMS 
note indicates that the order was reviewed, the reviewer released the 
order noting: ``ok to ship 96 OXY 30mg, order os within roling [sic] 30 
day.'' GX 16, at 230. Here again, while the order exceeded the CSL, 
there is no evidence that Respondent obtained an explanation for the 
order and a new UR.
---------------------------------------------------------------------------

    \75\ The total includes orders for 9,600 du of oxycodone 30 on 
Oct. 4, 11, 18, and 25, and an order for 1,200 du on Oct. 26; it 
also includes orders for 600 oxycodone 5 on Oct. 7; 200 du of 
Endocet 10/650 on Oct. 18; 600 du of oxycodone 10/325 on Oct. 25; 
and 300 du of oxycodone 5/325 on Oct. 13. GX 10F, at 31,33.
---------------------------------------------------------------------------

    Likewise, on November 9, Respondent filled an order for 1,200 du of 
oxycodone 30, bringing The Drug Shoppe's total filled orders to 42,500 
du on a rolling 30-day basis.\76\ The order was released with the 
reviewer providing the following reason in the SOMS note: ``rwr Oxy 
order under last monthly purchse[sic] pattern leaves 29,900--11/9/10.'' 
GX 16, at 230. Here again, there is no evidence that Respondent 
contacted The Drug Shoppe to obtain an explanation for the order and a 
new UR.
---------------------------------------------------------------------------

    \76\ The total included orders for 9,600 du of oxycodone 30 on 
Oct. 11, 18, 25, and Nov. 1, and 1,200 du of oxycodone 30 on Oct. 
26. It also includes orders for 200 du and 300 du of Endocet 10/650 
on Oct. 8 and Nov. 3 respectively; 600 du and 300 of oxycodone 10/
325 on Oct. 25 and Nov. 3; and 300 du of oxycodone 5/325 on Oct. 13.
---------------------------------------------------------------------------

    On November 18, 2010, Respondent conducted another site visit. RX 
2B, at 12. During the visit, Respondent's inspector was told by a 
pharmacy technician that The Drug Shoppe's PIC would be changing the 
following week. RX 2B, at 12. The inspector was also told that 
controlled drugs comprised 40 percent of the prescriptions the pharmacy 
filled and that 10 percent of its prescriptions were for any schedule 
II drug. Id. at 13. The inspector was further told that 85 percent of 
the controlled substance prescriptions were paid for with cash. Id.\77\ 
Respondent did not, however, obtain a new UR (and had not obtained a 
new UR since June (for the month of May)) and would not obtain a new UR 
until December 15. RX 2B, at 1, 52. According to a note in the Ship to 
Memos, Respondent requested that The Drug Shoppe provide a UR for the 
month of October because of ``allocation issues in November for Oxy.'' 
GX 16, at 221.
---------------------------------------------------------------------------

    \77\ Immediately following the inspector's report in the due 
diligence file is a page with the following handwritten notations: 
``Assumption-,'' ``Comparisons of Business Norms,'' ``Patterns of 
Distribution,'' and ``compare like Nationally.'' RX 2B, at 15. 
However, the record does not establish who wrote the notations and 
his/her purpose in doing so.
---------------------------------------------------------------------------

    The UR shows that during October, The Drug Shoppe dispensed 262 
prescriptions totaling 49,637 du of oxycodone 30 mg, for an average of 
189 du per prescription. RX 2B, at 46. Yet The Drug Shoppe's total 
dispensings of all drugs (including non-controlled) were 184,679 du. 
Id. at 51. Thus, oxycodone 30 mg alone comprised 27 percent of The Drug 
Shoppe's dispensings.
    With respect to oxycodone 15 mg, the UR showed that The Drug Shoppe 
dispensed 21 prescriptions totaling 3,140 du of oxycodone (and 
Roxicodone) 15 mg, for an average of 149.5 du per prescription. Id. at 
46, 48. In addition, the UR showed that The Drug Shoppe also dispensed 
1,653 du of continuous release oxycodone products (e.g., OxyContin), 
3,171 du of combination oxycodone drugs, and 560 du of oxycodone 5 mg, 
for a total of 58,161 du, or more than 31 percent of its total 
dispensings.\78\ RX 2B, at 39, 46.
---------------------------------------------------------------------------

    \78\ The October 2010 UR also showed that The Drug Shoppe had 
dispensed 9,697 tablets of methadone 10 mg, another schedule II 
drug. RX 2B, at 44.
---------------------------------------------------------------------------

    Notwithstanding this information, during December 2010, Respondent 
shipped 24,400 du of oxycodone 30 and 2,000 du of oxycodone 15 mg, for 
a total of 26,400 du. GX 10F, at 31. Notably most of the orders were 
shipped on or after December 15, the date it received the UR. Id.; RX 
2B, at 52.
    In January 2011, Respondent shipped 17,000 du of oxycodone 30 mg, 
2,700 du of oxycodone 15 mg, and 2,100 du of five combination oxycodone 
products. GX 10F, at 31-34. While an MFR note dated January 10, 2011, 
which is of marginal legibility, suggests that The Drug Shoppe was on 
CR (compliance review) ``for re-review,'' another note in the ``sign 
off'' column states ``RWR [release with reservation] until file 
reviewed [unintelligible].'' RX 2B, at 1.\79\ Moreover, after January 
11, Respondent filled orders for 12,000 du of oxycodone 30 and 1,200 du 
of oxycodone 15.
---------------------------------------------------------------------------

    \79\ There is no corresponding entry in the SOMS notes for the 
same date. GX 16, at 232.
---------------------------------------------------------------------------

    On February 8, 2011, Respondent filled orders from The Drug Shoppe 
for 3,000 du of oxycodone 30 mg; 900 du of oxycodone 15 mg; 200 du of 
oxycodone 5mg; and 800 du and 1,100 du of various oxycodone combination 
products. GX 10F, at 31-34. The same day, several DEA Diversion 
Investigators went to Respondent's Kemper Springs facility and 
requested The Drug Shoppe's file. RX 2B, at 1. While it is unclear 
whether the Investigators discussed with Respondent's staff that The 
Drug Shoppe had been issued an Order to Show Cause based on allegations 
that its owner and PIC (Bhupendra Agravat) had engaged in the unlawful 
distribution of controlled substances,\80\ or that Mr. Agravat had 
recently agreed to settle the matter on the pharmacy's behalf by, in 
part, having no management, operational, or ownership interest in it, 
an MFR note states that ``file was reviewed/requested by DEA on 2/8/
11'' and that ``the account was placed on NC [non-controlled] for 
review.'' RX 2B, at 1. A further MFR note states that during a phone 
call on February 10, Mr. Agravat admitted that during 2004-05, he was 
involved in distributing hydrocodone and Xanax over the internet but 
``did not know [he] was being prosecuted by DEA.'' Id. Thereafter, 
Respondent finally terminated The Drug Shoppe as a controlled substance 
customer. Id.
---------------------------------------------------------------------------

    \80\ The Show Cause Order issued to The Drug Shoppe alleged 
that: 1) Mr. Agravat had engaged in an unlawful internet 
distribution scheme by filling controlled substances prescriptions 
which violated 21 CFR 1306.04(a) because the physicians, who were 
located in different States than their patients, did not establish a 
valid doctor-patient relationship; 2) on May 22, 2009, Agravat had 
pled guilty in Arizona Superior Court to facilitation to commit the 
sale of narcotic drugs; and 3) Agravat had distributed 480 du of 
OxyContin to a single individual, by filling four prescriptions 
written in four different names, in exchange for $5,350. GX 17, at 
10.
---------------------------------------------------------------------------

    On February 23, 2011, The Drug Shoppe placed an order for 500 du of 
alprazolam 2mg. GX 40, at 14. Respondent reported the order to DEA as 
suspicious. Id.
    In her declaration, Ms. Seiple asserted that because The Drug 
Shoppe's PIC provided a written description of its policies and 
procedures to prevent diversion, Respondent's ``Compliance

[[Page 55443]]

Department believed that Drug Shoppe understood its obligations to 
prevent diversion . . . and was taking affirmative steps to meet those 
obligations.'' RX 103, at 42-43. She further asserted that because its 
PIC told Respondent's consultant that its ``business model included 
filling prescriptions for a number of patients suffering from . . . 
HIV/AIDS[,] [t]his accounted for the volume of pain medications being 
dispensed, and the percentage of oxycodone dispensed relative to other 
drugs.'' Id. at 43. Yet Respondent simply accepted this assertion 
without any further inquiry into how many HIV/AIDS patients The Drug 
Shoppe was dispensing to, let alone how many of these patients were 
being prescribed oxycodone 30. Nor did she identify the other drugs 
which the HIV/AIDS patients, who filled their oxycodone prescriptions 
at The Drug Shoppe, were presumably taking, and compare the number of 
prescriptions for these drugs with the number of the oxycodone 
prescriptions.
    Next, Ms. Seiple asserted that both a sales manager and sales 
representative ``were personally acquainted with Mr. Agravat (they 
referred to him as `Boo') and vouched for his character and that of the 
pharmacy.'' Id. However, the fact that these two employees referred to 
Agravat by his nickname hardly establishes that they had sufficient 
personal knowledge to vouch for his character.
    Ms. Seiple also asserted that ``[a]fter Drug Shoppe's account was 
approved, [Respondent's] SOMS . . . identified and held any order for 
controlled substances placed by Drug Shoppe that deviated from its 
typical volume, pattern or frequency'' and that ``[a]ll such orders 
were released only after review by [the] Compliance Department.'' Id. 
at 43-44. However, as found above, this statement is misleading as the 
SOMS did not become operational until August 2009, and during the 
period from April 1, 2009 through the date on which the SOMS became 
operational, Respondent shipped to The Drug Shoppe quantities that 
placed the pharmacy over its oxycodone purchasing limit and failed to 
document why it did so; it also did not report the orders as 
suspicious. Moreover, as found above, even after the SOMS became 
operational, on numerous occasions Respondent shipped oxycodone in 
quantities that placed The Drug Shoppe over the CSL and yet failed to 
obtain an explanation for the order from the pharmacy, which it then 
independently verified, and only rarely obtained URs, even though its 
Policy 6.2 required doing so on the review of each held order.
    In her declaration, Ms. Seiple failed to specifically address the 
numerous instances in which the Compliance Department released orders 
which placed The Drug Shoppe over its CSL without obtaining an 
explanation (which was independently verified), as well as its repeated 
failure to obtain new URs. Instead, she offered only conclusory 
assertions to the effect that Respondent ``was aware of the volume of 
oxycodone and other controlled drugs being dispensed by Drug Shoppe, 
and the percentage of controlled drugs dispensed relative to other 
drugs,'' that it ``specifically investigated the reasons why Drug 
Shoppe's ordering and dispensing patterns were as indicated on the 
URs,'' and that ``[t]he URs and other information provided by Drug 
Shoppe were consistent with the pharmacy's business model as explained 
by Mr. Agravat and confirmed in the April 2008 site inspection.'' Id. 
at 44.
    Addressing the January 2010 site visit, after which Mr. Chase noted 
that The Drug Shoppe's dispensing ratio of controlled to non-controlled 
drugs seemed ``a little high'' and recommended that a new UR be 
obtained, Ms. Seiple offered the unresponsive assertion that 
Respondent's policies and procedures ``do not specify any particular 
percentage of controlled . . . to non-controlled drugs that the Company 
considers `high' or `a little high.' '' Id. at 45. She then maintained 
that ``Mr. Chase did not recommend that [Respondent] stop selling 
controlled drugs to Drug Shoppe following his inspection,'' Id., while 
entirely failing to address why Respondent ignored his recommendation 
to obtain a new UR and did not obtain a new UR until five months later. 
Id. at 46.
    As for the circumstances surrounding the eventual termination of 
The Drug Shoppe, Ms. Seiple asserted that Respondent was unaware that 
Mr. Agravat had ``any drug-related criminal issues'' and believed that 
he left the country because he had a visa problem. Id. at 46-47. She 
stated that while Mr. Agravat had admitted (in 2008) that in 2006, he 
had been disciplined by the Florida Board of Pharmacy, he did not 
inform Respondent ``of any other criminal, regulatory, or disciplinary 
actions [including any action by DEA] taken against him or [The] Drug 
Shoppe,'' and that it was only in February 2011 that Agravat told 
Respondent ``that he was under investigation for issues relating to 
pharmaceutical sales on the internet that occurred in 2004 or 2005.'' 
Id. at 47. She further asserted that DEA does not publish information 
to the pharmaceutical industry regarding the issuance of Show Cause 
Orders. Id.
    Even accepting that Respondent was unaware of the criminal case 
against Mr. Agravat until February 2011 and that the record does not 
establish the date on which he was charged by the State of Arizona, it 
is notable that, with the exception of the May 2008 site visit report, 
the various forms used by Respondent's employees and consultants in 
performing due diligence did not even contain a question as to whether 
the pharmacists had ever been criminally charged with offenses related 
to controlled substances. See generally RX 2B. Moreover, while the form 
used for the May 2008 site visit included a question which asked if 
``any of the staff pharmacists'' had ever ``been criminally 
prosecuted[] or subjected to civil fines relative to the sale or 
dispensing of controlled substances,'' Respondent's consultant did not 
document an answer. Id. at 28. Yet there is no evidence that Respondent 
ever followed up on this omission.

Englewood Specialty Pharmacy

    Englewood Specialty Pharmacy, which did business as Gulf Coast 
Pharmacy and was located in Port Charlotte, Florida, first became a 
customer of Respondent on January 29, 2008. RX 2C, at 71, 74. According 
to the due diligence file, the pharmacy, which had opened three years 
earlier, had begun ``as almost all compounding'' but had since become 
``more of a retail pharmacy.'' Id. at 81. Printouts (dated March 14 & 
17, 2008) in the due diligence file establish that Respondent verified 
the license and registration status of the pharmacy, as well as the 
license status of a pharmacist named Kevin Parkosewich. Id. at 86, 91-
92. Of note, however, Respondent's ``DEA Schedule Orders--Due Diligence 
Report Form,'' which indicates that a review was done on March 17, 
2008, lists one Dan Farris as the pharmacist and owner but there is no 
license verification for him in the due diligence file.\81\ Id. at 81.
---------------------------------------------------------------------------

    \81\ There is a license verification dated Sept. 8, 2008 for a 
Michael A. Farris, who was listed as the pharmacy ``prescription 
department manager'' on a Florida Department of Health Inspection 
Report dated August 30, 2007. RX 2C, at 74. The Report was signed, 
however, by ``D. Farris.'' Id.
---------------------------------------------------------------------------

    According to the Due Diligence Report Form, Englewood had requested 
an increase in its purchasing limits for hydrocodone and oxycodone. 
Id.; see also id. at 89. On the form, Englewood disclosed that its 
daily prescription average was 190, that 30 percent of the

[[Page 55444]]

prescriptions were for controlled drugs, and that 15 percent of the 
prescriptions were for schedule II drugs. Id. It also reported that 60 
percent of its prescriptions were paid for by insurance and that they 
had a ``good relationship'' with a pain clinic doctor who was located 
``across the street.'' Id. Englewood represented that to prevent doctor 
shopping it made ``sure the RX is valid''; that if a doctor was from 
outside the area, it called the doctor; and that it validated the 
doctors' DEA numbers. Id. at 82.
    Respondent also obtained a UR showing Englewood's dispensings 
during the month of January 2008. RX 2C, at 129-162. The UR shows that 
Englewood had dispensed a total of 342,760 dosage units for all 
prescription drugs; this included 161,729 du of schedule II drugs; 
19,953 du of schedule III drugs; 45,817 of schedule IV drugs; 2,518 du 
of schedule V drugs; and 112,743 du of non-controlled legend drugs. See 
id. at 131, 134, 137-38, 162. By dosage units, Englewood's controlled 
substance dispensings constituted 67 percent of its dispensings, and 
schedule II drugs comprised 47 percent of its total dispensings.\82\
---------------------------------------------------------------------------

    \82\ On a Schedule Drug Limit Increase Request Form dated March 
13, 2008, an account manager for Respondent noted that Englewood 
used 70,000 du of solid dose oxycodone per month. RX 2C, at 89. 
However, the data in the January 2008 UR show that the pharmacy was 
actually dispensing more than 102,000 du of all formulations of 
oxycodone, which included 39,469 du of oxycodone (and Roxicodone) 
30; 17,303 du of oxycodone 15; 13,040 du of OxyContin 80 and 450 du 
of oxycodone 80 CR; 10,254 du of OxyContin 40; 2,725 du of oxycodone 
5; 1,678 of oxycodone 20 CR; 880 du of OxyContin (and oxycodone CR) 
10; 1,170 du of Endocet 10/650; 11,675 du of Endocet 10/325; 350 du 
of Endocet 7.5/500; 860 du of Endocet 7.5/325; and 2,447 du of 
Endocet 5/325, for a total of 102,301 du. RX 2C, at 129-31.
---------------------------------------------------------------------------

    The UR also showed the total number of prescriptions for each 
scheduled and legend drug. Specifically, it showed that the pharmacy 
had filled 1,286 schedule II Rxs, 208 schedule III Rxs, 513 schedule IV 
Rxs (after subtracting out carisoprodol), 11 schedule V Rxs, and 1,952 
legend drug Rxs (including carisoprodol). Thus, the schedule II 
prescriptions actually comprised more than 32 percent, and all 
controlled substances comprised 51 percent of the total prescriptions 
dispensed, both figures being substantially larger than the figure 
reported by the PIC. Respondent nonetheless approved Englewood to 
purchase oxycodone, with documents suggesting that the amount was 
initially set at 250 bottles or 25,000 du per month. Id. at 87, 89.
    A ``Schedule Drug Limit Increase Request'' form states that on 
September 3, 2008, Englewood requested that its oxycodone limit ``be 
bumped up to the next level.'' Id. According to the form, Englewood now 
reported that its monthly usage of oxycodone was 95,000 du. Id. 
According to a Due Diligence Report Form (dated September 8) which 
noted that Englewood had requested an increase for oxycodone, the 
pharmacy reported that it filled 220 prescriptions per day, of which 30 
percent were controlled drugs and 20 percent were schedule II drugs. 
Id. at 71. Respondent again asked Englewood for information regarding 
its policies and procedures; in the words of Respondent's account 
manager, its owner/pharmacist ``basically sa[id] the same answers as 
before.'' Id. at 73. While Respondent re-verified Englewood's pharmacy 
license and DEA registration, as well as the pharmacists' licenses of 
Michael Farris and Kevin Parkosewich, it again failed to verify the 
license of Dan Farris, its owner and pharmacist-in-charge. See 
generally RX 2C.
    On September 22, Respondent obtained a new UR from Englewood which 
listed the pharmacy's dispensings of all prescription products from 
March 1 through that morning. RX 2C, at 114-28. The report showed that 
during that period, Englewood dispensed 345,175 du of oxycodone 30, an 
average of 51,355 du per month, and 154,008 du of oxycodone 15, an 
average of 22,947 du per month.\83\ The report also showed that 
Englewood dispensed 185,426 du of various dosage strengths of oxycodone 
continuous release drugs (including OxyContin), an average of 27,268 du 
per month. Finally, the report showed that Englewood dispensed 118,420 
du of combination oxycodone products, an average of 17,645 du per 
month, as well as 27,768 du of oxycodone 10 mg and 5 mg, an average of 
4,137 du per month. In total, Englewood dispensed 830,797 du of 
oxycodone during the period of the report, an average of 123,789 du per 
month. By contrast, even including Englewood's dispensings of 
carisoprodol (99,222 du) (which was then controlled in the State of 
Florida but not under the CSA) in calculating its dispensing of non-
controlled prescription drugs, Englewood's dispensings of these drugs 
totaled only 556,938 du.
---------------------------------------------------------------------------

    \83\ The monthly averages were calculated by dividing 30.5 by 
the total number of days from March 1 through and including 
September 21 (205), and then multiplying this figure (.149) by the 
total dispensings.
---------------------------------------------------------------------------

    In total, Englewood's UR showed that it dispensed more than 
1,280,332 du of schedule II drugs; \84\ 400,581 du of schedule III 
through V drugs (excluding carisoprodol); and 2,238,571 du of all 
prescription drugs. Thus, schedule II drugs comprised a total of 57 
percent of Englewood's total dispensings, and all controlled substances 
comprised 75 percent of its dispensings.
---------------------------------------------------------------------------

    \84\ The UR for Englewood's schedule II dispensings lists the 
number of units dispensed as 128,033. RX 2C, at 122. As the first 
entry on the UR indicates that Englewood dispensed 183,154 du of 
methadone, see id. at 119, it is apparent that the total figure is 
in error and that the last digit was cut off.
---------------------------------------------------------------------------

    The UR also showed the number of prescriptions Englewood filled for 
each drug and provided a separate total for all schedule IIs (9,928 
Rxs), all schedule III through V (6,724 Rxs), and Legend drugs (5,663 
Rxs), for a total of 22,315 prescriptions. Id. at 122, 127, 128. Thus, 
schedule II prescriptions comprised 44.5 percent of all prescriptions, 
nearly three times what the PIC had reported during the initial due 
diligence survey. Moreover, even after subtracting out the 1,129 
prescriptions for carisoprodol from the total for schedules III through 
V, id. at 114, 117; controlled substance prescriptions totaled 15,523 
prescriptions and nearly 70 percent of all prescriptions, more than 
double the figure reported by the PIC.
    On November 3, 2008, Respondent's consultant performed a site visit 
at Englewood. RX 2C, at 75. On his report, the consultant listed Dan 
Farris as the Pharmacist-in-Charge. Id. He also noted that the pharmacy 
filled 220 prescriptions per day, but did not service nursing homes, 
hospice programs or inpatient facilities. Id. at 77. He also noted that 
25 percent of the prescriptions were for controlled substances, and 
that the pharmacy filled prescriptions for pain management clinics and 
listed the names of six pain management physicians. Id. at 77-78. While 
the consultant then wrote that Englewood was ``[a]djacent to 2 large 
hospitals and several buildings with doctors offices in them,'' and 
``appears to be a busy prescription store,'' he further noted that 
``[h]e [the PIC] appears to be doing a larger narcotic business than he 
admits to.'' Id. at 78 (emphasis added).
    The due diligence file contains no evidence that Respondent did 
anything to address the consultant's observation, even though it had 
the UR. Nor does it contain any evidence that Respondent compared the 
prescription percentage reported by the consultant with the most recent 
UR. Instead, a notation on the Schedule Drug Limit Increase Request 
form from two months earlier indicates that on November 25, 2008, 
Respondent approved Englewood to purchase 50,000 du per month of 
oxycodone. Id. at 87. The due diligence

[[Page 55445]]

file contains no documentation that Englewood's oxycodone purchasing 
limit was raised between this date and April 1, 2009.
    However, in April 2009, Respondent filled multiple orders placed by 
Englewood for 71,900 du of oxycodone 30 and 8,400 du of oxycodone 15, 
for a total of 80,300 du of oxycodone. GX 10F, at 16-17. 
Notwithstanding that these orders (and in particular the April 29 order 
for 30,300 du) exceeded the purported oxycodone purchasing limit by 
more than 30,000 du, the due diligence file contains no explanation for 
why this order was approved. Moreover, the order was not reported as 
suspicious.
    In May 2009, Respondent filled orders totaling for 50,000 du of 
oxycodone 30. GX 10F, at 16-17. However, on June 1, it filled an order 
for 50,000 du of oxycodone 30, and on June 11, it filled orders for 
52,000 du of oxycodone 30, for a monthly total of 102,000 du. Id. at 
17. Here again, notwithstanding that Englewood's June 11 orders placed 
it more than 50,000 du over (and at more than double) its oxycodone 
purchasing limit, the due diligence file contains no explanation as to 
why the June 11 orders were approved. And here again, the orders were 
not reported as suspicious.
    On July 1, 2009, Respondent filled orders for 100,000 du of 
oxycodone 30, and 2,000 du of oxycodone 15, for a total of 102,000 du. 
Id. at 17. Again, Englewood's due diligence file contains no 
documentation explaining why these orders, which were more than double 
the oxycodone purchasing limit, were approved. And here again, the 
orders were not reported as suspicious.
    On August 3, Respondent filled orders for 90,000 du of oxycodone 30 
and 12,000 du of oxycodone 15, for a total of 102,000 du. Id. And on 
September 28, Respondent filled orders totaling 90,000 du of oxycodone 
30 mg, as well as for 10,000 du of oxycodone 15, for a total of 100,000 
du. Id. The SOMS notes indicate that neither set of orders were held 
for review. See GX 18, at 163.
    An MFR note dated October 1, states: ``need updated UR report. 
[P]urchased 1000 pills in two days on CH. [Talked To] Michele K.\85\ 
Will be purchasing Oct. 26th.'' RX 2C, at 4. And an MFR note dated 
October 5 states that Respondent contacted Englewood to request a UR, 
spoke with Dan (the PIC), and received a UR for the month of September 
later that day. Id.
---------------------------------------------------------------------------

    \85\ Various documents in the due diligence file list a Michelle 
Kostoff as Respondent's account manager for Englewood. RX 2C, at 84-
85, 89.
---------------------------------------------------------------------------

    The UR showed that during that month, Englewood dispensed a total 
of 302,459 du of schedule II drugs; 20,608 du of schedule III drugs; 
52,283 du of schedule IV drugs (excluding carisoprodol); 1,480 du of 
schedule V drugs; and 112,947 du of non-controlled prescription drugs 
(including carisoprodol). RX 2C, at 43, 45, 48-49, 69. Of Englewood's 
total dispensings of 489,777 du, schedule II drugs comprised 62 percent 
and all controlled substances were 77 percent.
    The UR further showed that during that month, Englewood dispensed a 
total of 123,476 du of oxycodone 30 mg; 26,097 du of oxycodone 15 mg; 
41,619 du of various strengths of oxycodone extended release and 
OxyContin; and 21,485 du of other oxycodone drugs including oxycodone 5 
mg (2,930 du) and combination drugs. Id. at 40, 42-43. Englewood's 
dispensings of oxycodone alone totaled 212,677 du, more than 43 percent 
of all dispensings.
    As for the number of prescriptions, the UR showed that Englewood 
had dispensed 2,392 sch. II Rxs, 218 sch. III Rxs, 870 sch. IV Rxs 
(excluding carisoprodol), 9 sch.V Rxs, and 1,804 legend drug Rxs 
(including carisoprodol). Thus, the schedule II prescriptions alone 
accounted for 45 percent and all controlled substances were 66 percent 
of all prescriptions dispensed.
    On October 8, Ms. Seiple spoke with Englewood's PIC who now claimed 
that his pharmacy was filling 250 to 300 prescriptions per day. GX 18, 
at 166. The PIC also claimed that his pharmacy was located ``in close 
proximity'' to two hospitals and that it got ``most of [its] business 
from pain clinics in the area,'' including a clinic which was ``lacated 
[sic] across the street.'' \86\ Id. The PIC further stated that his 
methadone prescriptions ``range from 60-1000 pills per script'' and 
they averaged ``480-600 pills per script.'' Id.
---------------------------------------------------------------------------

    \86\ While at the Nov. 2008 site visit, Respondent's consultant 
had noted that Englewood was located ``adjacent'' to ``several 
buildings with doctors offices in them,'' he did not specify that 
there was a pain clinic across the street. RX 2C, at 78. Moreover, 
while Englewood's PIC attempted to justify the pharmacy's orders for 
narcotics by claiming that a pain clinic--which he named--was 
located across the street, there is no evidence that Respondent did 
anything to verify this statement.
---------------------------------------------------------------------------

    Ms. Seiple also noted that ``[t]he account is showing usage of 150k 
oxy in month of September'' and that Englewood was also purchasing 
controlled substances from Amerisource Bergen. Id. Continuing, Ms. 
Seiple noted that her ``recommendation is to review [the] account and 
reduce limits . . . on these two products until committee review to 12k 
on methadone and 50k on oxy to contain purchasing.'' Id. Ms. Seiple 
also noted that Englewood's PIC had ``indicate[d] [that] he will be 
doin[sic] the bulk of his purchasing now at the end of the month to 
take advantage of the full 45 days.'' Id.
    A handwritten MFR note by Ms. Seiple of the same date states: ``we 
need to override limits @ 12k methadone 500 on Oxy'' and ``very 
concerned w/quantity dispensed per ur.'' RX 2C, at 4. Indeed, while 
Englewood's pharmacist had previously stated that the methadone 
prescriptions averaged 480-600 pills per script, the September UR 
showed that Englewood had dispensed 194 prescriptions totaling 50,004 
du, an average of 258 du per prescription.
    Yet there is no evidence that Respondent compared the PIC's 
statement with what the UR actually showed. This was just one of 
multiple times when Englewood's PIC had made false statements to 
Respondent's employees regarding his controlled substance dispensings, 
which could have been easily verified but were not.
    According to the SOMS notes, on October 27, 2009, Englewood ordered 
100,000 du of oxycodone 30 and 20,000 du of oxycodone 15; however, the 
order was held for review by the SOMS. GX 18, at 163. Notes in the MFR 
and Ship to Memos showed that the committee reviewed Englewood's 
account and approved the limits of 50,000 du of oxycodone and 12,000 du 
of methadone, which Ms. Seiple had previously imposed pending the 
review. Id.; see also RX 2C, at 4. A note in the MFR further shows that 
Respondent contacted Englewood's PIC and was made ``aware'' that his 
``order was edited'' and ``[r]educed from 100k to 50k.'' RX 2C, at 4; 
see also GX 18, at 163 (SOMS note: ``order revised shipped 50k on oxy 
for the month edited order from 100k on oxy 30 and 15 mg edit from 20 
to 0''). Respondent did not, however, report the order as suspicious.
    On October 29, Respondent filled an order for 50,000 du of 
oxycodone 30. GX 10F, at 17. Respondent did not, however, report the 
order as suspicious.
    In November, the compliance committee further reduced Englewood's 
oxycodone CSL from 50,000 to 37,500 du.\87\ GX 18, at 166. Consistent 
with the new limit, on November 30, Respondent filled Englewood's order 
for 37,500 du of oxycodone 30. GX 10F, at 17; RX 2C, at 3.
---------------------------------------------------------------------------

    \87\ Entries in the MFR dated December 17 suggests that this 
reduction was not motivated by concern that Englewood was diverting 
the drugs but by Respondent's decision to ``allocate'' its supply of 
oxycodone because it had a reduced inventory. See RX 2C, at 3.

---------------------------------------------------------------------------

[[Page 55446]]

    However, just three days later, Englewood placed an order for 
50,000 du of oxycodone 30 and 24,000 du of methadone. RX 2C, at 3. An 
MFR note states that the oxycodone order was deleted because Englewood 
had ``just purchased'' on November 30 with the further notation of 
``rolling 30.'' Id. The MFR notes further show that Ms. Seiple called 
the PIC and told him that the ``order was deleted'' and that orders for 
the account would not be filled until there was a review by the 
committee. Id.
    Of further note, the MFR contains no reference as to the PIC's 
explanation for the order and a new UR was not obtained. Here again, 
the order was not reported as suspicious, even though the order placed 
Englewood's oxycodone orders on a rolling 30-day basis at 87,500 du, 
more than double its CSL.
    On December 17, Englewood placed another order for 50,000 du of 
oxycodone and 24,000 du of methadone. RX 2C, at 3. While Wayne Corona 
directed that the orders not be filled because they exceeded 
Englewood's CSLs on a ``rolling 30'' day basis, the note further 
indicated that the committee would review the account after 12-21-09 
and that Respondent ``only will allocate 37,500 oxy [and] 12k 
meth[adone] per committee review.'' Id. Continuing, the note states: 
``get w/Wayne to see if he wants to ship 37,500 or decrease,'' as well 
as ``see email to wayne'' and ``correspondence on account.'' Id. 
However, neither the email nor any ``correspondence on account'' is in 
the due diligence file submitted by Respondent.
    A second entry for December 17 indicates that Ms. Seiple called 
Englewood's PIC and ``advised [that] order is not shipping'' and 
``referred to'' their conversation of two weeks earlier. RX 2C, at 3. 
The PIC asked Ms. Seiple if an order placed on December 21 would be 
shipped and if he was ``guaranteed product this month.'' Id. Seiple 
noted that she referred to Respondent's ``script and reasoning on 
allocation in industry per training,'' and that after assuring the PIC 
that the decision ``was not personal,'' she told him that she would 
``advise Michele [the account manager] to place [the] order on 12-21-09 
for review.'' Id. A further note in the margin adjacent to this entry 
states: ``will be resubmitting if approved to ship only can have 375 of 
oxy 120 of meth.'' Id.
    While the order clearly placed Englewood above its CSL, here again 
there is no evidence that Ms. Seiple asked its PIC why his pharmacy 
needed so much oxycodone 30. Nor did she obtain a new UR. Moreover, 
Respondent did not report the order as suspicious.
    On December 28, 2009, the compliance committee conducted a new 
review and approved Englewood for an order of 50,000 oxycodone 30 and 
24,000 methadone, which was shipped. RX 2C, at 2; see also GX 10F, at 
17. The MFR note further states that Englewood was on the site visit 
list. RX 2C, at 2.
    On January 12, 2010, Jeff Chase conducted a site visit at 
Englewood. Id. at 34-38. Mr. Chase noted that Dan Farris was the owner/
PIC. Id. at 35. The form included the question: ``Has the Pharmacy, the 
PIC, or the owner ever had their DEA license, or any other license in 
any State, suspended, revoked, or disciplined?'' Id. Mr. Chase checked 
``No.'' Id. However, once again, there is no evidence that Chase or 
anyone else at Respondent verified this information even though this 
could have been easily done by accessing the Florida Department of 
Health's Web page and had never been done with respect to the PIC.
    Mr. Chase noted that Englewood filled an average of 265 
prescriptions per day. Id. at 36. He then noted that ``40%'' were for 
any controlled substances--adding the comment ``A little high!''--and 
that ``25% were for schedule II drugs.'' Id.
    In contrast to the PIC's representation in October that a pain 
management practice was located across the street, Mr. Chase noted that 
a ``G.P. Doctor [was] next door and a couple [of] pain clinics [were] 
in the area.'' Id. at 37. He also noted that there were ``two hospitals 
down the street.'' Id. However, no further information was documented 
as to how many controlled substance prescriptions issued by physicians 
at the hospitals were being filled at Englewood, nor the types of drugs 
involved in those prescriptions. While Mr. Chase further noted that 
pharmacy appeared to have a full selection of pharmaceuticals 
available, he also noted that it had a ``small selection of OTCs.'' Id.
    As part of his visit, Mr. Chase also prepared a ``Site Visit 
Recommendation'' form. Id. at 34. While Mr. Chase indicated that the 
site visit was acceptable, he recommended that a new UR be requested. 
Id. Mr. Chase checked three reasons for his recommendation, noting that 
the pharmacy had ``Minimal OTCs,'' that controlled drugs were ``40%'' 
which was ``a little high,'' a point he reiterated under ``Other'' 
reasons. Id. (underlining in original). As to the latter, Mr. Chase 
wrote: ``This pharmacy appears to be a well ran [sic] pharmacy but is a 
little high on CII-Vs!! We need to get a Utilization Report & compare 
it to what was reported to site visit.'' Id. (underlining in original). 
The form bears the circled initial of ``W'' and the date ``1/20/10,'' 
id., and an MFR note, which discusses the site visit, states that it 
was ``signed by Wayne.'' RX 2C, at 2.
    However, here again, Mr. Chase's recommendation was disregarded. 
Instead, a new UR was not obtained until August 12, 2010. See id. at 2, 
13.
    On January 26, Respondent filled Englewood's order for 47,600 du of 
oxycodone 30 and 2,400 du of oxycodone 15. GX 10F, at 17. This order 
placed Englewood's total oxycodone orders at 100,000 du on a rolling 
30-day basis and again exceeded the CSL (which, according to a Jan. 27 
note by Ms. Seiple, was still set at 37,500 du). GX 18, at 163. 
Moreover, it was more than double the amount approved by the compliance 
committee in December. As for why the order was approved, an MFR note 
of the same date states: ``Ship per UR per Committee signed by Wayne.'' 
RX 2C, at 2.
    The next day, Respondent filled Englewood's orders for an 
additional 20,000 du of oxycodone 30. GX 10F, at 17. Thus, with the 
order, Englewood's oxycodone orders on a rolling 30-day basis totaled 
70,000 and again exceeded the CSL.
    While the order was held, a SOMS note made by Ms. Seiple states: 
``releasing order supported by ur csl 37500 on oxy committee ok 50k in 
dec and to ur in jan.'' GX 18, at 163. And a note in the Ship to Memos 
by Ms. Seiple states: ``per committee 50k in dec and ship to ur on 1/
26/10. Order for 20k releasing on 1/27/10 month to date on oxy 70k.'' 
Id. at 167. See also RX 2C, at 2 (MFR note: ``Order for 20,000 Oxy 30 
mg,'' ``Release order @50k w/order,'' and ``70k on the month for 
oxy'').
    Here again, there is no evidence that Respondent contacted 
Englewood to obtain an explanation for the January 26 and 27 orders. 
And notwithstanding that: (1) It had not obtained a new UR in four 
months; (2) its inspector had recommended that it obtain a new UR; and 
(3) its policy required that it obtain a new UR whenever it reviewed an 
order held by the SOMS; Respondent still failed to obtain a new UR.
    On February 25, Respondent filled Englewood's order for 50,000 du 
of oxycodone 30; the order placed Englewood's oxycodone orders at 
70,000 du on a rolling 30-day basis. GX 10F, at 17. There are two SOMS 
notes of the same date, but neither specifically refers to oxycodone. 
The first establishes that an order was reviewed by Ms. Seiple, who 
released the order, because it was ``supported by ur.'' GX 18, at 164. 
The second shows that an order was reviewed by another

[[Page 55447]]

employee, who wrote: ``ok to ship all controls within csl for period.'' 
Id. However, as found above, the February 25 oxycodone order placed 
Englewood over its CSL.
    The next day, Respondent filled Englewood's orders for another 
14,000 du of oxycodone 30 and 6,000 du of oxycodone 15, again totaling 
70,000 du on a rolling 30-day basis (as well as for the month). Id. A 
SOMS note dated Feb. 26, 2010 shows that Ms. Seiple released the order 
because it was ``supported by UR.'' GX 18, at 164.
    Here again, there is no evidence that Respondent obtained an 
explanation from Englewood for either the Feb. 26 or 27 orders. 
Moreover, the last UR Respondent obtained was five months old.
    In March, Respondent filled even larger orders for Englewood. 
Specifically, on March 17, it filled an order for 50,000 du of 
oxycodone 30, and on March 26, it filled an order for another 30,000 du 
of oxycodone 30. GX 10F, at 17. The March 17 order placed Englewood's 
oxycodone orders at 120,000 du on a rolling 30-day basis, and the March 
26 order placed Englewood's oxycodone orders at 150,000 du on a rolling 
30-day basis. Id.
    A SOMS note shows that the March 17 order was released by Mr. 
Schulze, who noted: ``oxy supported by ur.'' GX 18, at 164. Likewise, 
Ms. Seiple released the March 26 order noting that it was ``supported 
by ur.'' Id. Notwithstanding that Englewood's orders exceeded the 
previously set CSL by a factor of three to four (and 82,500 and 112,500 
du), Respondent did not contact the pharmacy and obtain an explanation 
for the orders. Nor did it obtain a new UR. And it did not report 
either order as suspicious.
    On March 29, Respondent filled an order for 9,600 du of oxycodone 
15, thus totaling 89,600 du for the month and again exceeding the CSL 
by more than 50,000 du.\88\ GX 10F, at 17. Id. According to a SOMS 
note, the March 29 order was ``ok to ship-oxycodone ur supported 
increase for period.'' GX 18, at 164. Here again, Respondent failed to 
obtain an explanation for the order and a new UR. It also failed to 
report the order as suspicious.
---------------------------------------------------------------------------

    \88\ Moreover, even on a calendar-month basis, Englewood's March 
orders were nearly 20,000 du greater than its February orders.
---------------------------------------------------------------------------

    On April 15, Respondent filled an order for 50,000 du of oxycodone 
30, which according to the SOMS was approved because it was ``under 
[the] CSL.'' GX 18, at 164. Yet on placing the order, Englewood's 
oxycodone orders totaled 139,600 du on a rolling 30-day basis and thus 
clearly exceeded the CSL. Here again, there is no evidence that 
Respondent obtained an explanation for the order from the pharmacy and 
it did not report the order as suspicious.
    Thereafter, on April 26, Englewood ordered an additional 30,000 du 
of oxycodone 30 and 10,000 du of oxycodone 15, placing its total orders 
at 99,600 du on a rolling 30-day basis. GX 10F, at 17; RX 2C, at 2. 
According to an MFR note, the order was released with ``reservation per 
committee'' as it was ``supported by [the] UR.'' RX 2C, at 2; see also 
GX 18, at 164 (SOMS note: ``order supported by ur per committee order 
is released see mfr''). Here again, there is no evidence that 
Respondent obtained an explanation for the order from the pharmacy and 
it did not report the order as suspicious.
    On May 17, Englewood ordered 70,000 du (700 bottles) of oxycodone 
30 mg. RX 2C, at 2; GX 18, at 164. The order (before it was edited) 
placed Englewood's oxycodone orders at 110,000 du on a rolling 30-day 
basis and well over its CSL. GX 10F, at 17. According to notes in the 
SOMS and MFRs, the order was edited from 700 bottles to 500 bottles 
``due to [its] pattern and size.'' RX 2C, at 2; GX 18, at 164. While 
the MFR states ``[s]till only using Masters & ABC,'' it further states 
``pattern & size was always 500 in middle of month.'' RX 2C, at 2. 
However, here again, even inferring that Respondent contacted Englewood 
to determine what distributors it was using, it did not obtain a new UR 
and failed to report the order as suspicious.
    In addition to filling the above order at 50,000 du, on May 26, 
Respondent filled an order for an additional 30,000 du of oxycodone 30, 
and on May 28, it filled an order for an additional 10,000 du of 
oxycodone 30. GX 10F. These orders placed Englewood's oxycodone orders 
at 80,000 and 90,000 du on a rolling 30-day basis. Moreover, during the 
month, Respondent again shipped a total of 90,000 du of oxycodone to 
Englewood.
    While there is a SOMS note dated May 26 by Ms. Seiple, which states 
``release order under csl,'' it is unclear what Englewood's oxycodone 
CSL was at this point, and notes pertaining to the following month 
suggest that the CSL was considerably lower than 90,000 du. GX 18, at 
164.
    On June 25, Respondent shipped an order for 50,000 du of oxycodone 
30, and on June 28, it shipped an additional 13,000 du of oxycodone 30 
to Englewood. GX 10F, at 17. A SOMS note dated June 28, states: ``order 
edited from 400 bottles of oxy to 130 per csl.'' GX 18, at 164. Given 
that as of the June 28 order, the only other order that had been filled 
on a rolling 30-day basis was the June 25 order for 50,000 du, the SOMS 
note establishes that Englewood's oxycodone CSL was then set at 63,000 
du. Yet this order was not reported as suspicious. Moreover, here again 
there is no evidence that Respondent obtained an explanation for the 
order and a new UR.
    Moreover, a note made by Ms. Seiple in the Ship to Memos dated June 
30 suggests that Englewood made an additional order for oxycodone two 
days later as it states: ``left a message for pharmacy recieved [sic] 
vm again orders for 96 each on oxy deleted at csl per policy[.] have 
been unable to get a hold of dan,'' the Owner/PIC. GX 18, at 167. 
Notwithstanding that Englewood had again ordered in excess of its CSL, 
Respondent again failed to report the order as suspicious.
    On July 13, Respondent shipped an order for 50,000 du of oxycodone 
30. GX 10F, at 17. This order brought the rolling 30-day total of 
Englewood's oxycodone orders to 113,000 du, nearly double its CSL.\89\ 
A SOMS note of the same date shows that Ms. Seiple released the order, 
explaining that ``dan [the PIC] is not ordering allotment anymore at 
the end of the month was only doing so for 60 day billing.'' GX 18, at 
164. It is unclear what to make of this given that the PIC had ordered 
large quantities of oxycodone (typically 50,000 du) on multiple 
occasions in the middle of the months of March, April, and May. See GX 
10F, at 17. Moreover, the PIC subsequently continued to order 
substantial quantities (13,000 du) of oxycodone 30 towards the end of 
subsequent months, including on July 27. See id. And in any event, Ms. 
Seiple did not obtain a new UR and had not done so in nine months.
---------------------------------------------------------------------------

    \89\ As previously explained, this total does not include the 
370 bottles (37,000 du) that were deleted from the June 28 order or 
the June 30 order for 96 bottles which was entirely deleted.
---------------------------------------------------------------------------

    As for the latter order, a SOMS note dated July 26, which is the 
only order noted in the SOMS between July 16 and August 10, shows that 
Ms. Seiple reviewed the order. The note then states: ``rwr edit order 
300 to 130.'' GX 18, at 164. As found above, Respondent had filled 
oxycodone 30 orders on June 28 for 13,000 du and on July 13 for 50,000 
du. Thus, on placing the order, Englewood's orders totaled 93,000 du on 
a rolling 30-day basis.
    Here again, even though the order clearly placed Englewood over its 
oxycodone CSL, Respondent did not obtain an explanation for the order 
or a

[[Page 55448]]

new UR. And it did not report the order as suspicious.
    On August 10, Respondent shipped an order for 50,000 du of 
oxycodone 30. On a rolling 30-day basis, Englewood's orders (not 
counting what was deleted) totaled 113,000 du. A SOMS note by Ms. 
Seiple states: ``rwr pending updated ur.'' GX 18, at 164. Unexplained 
is why the order was released given that it: (1) Was now seven months 
since Mr. Chase had conducted his site visit, after which he warned 
that Englewood seemed ``a little high'' on its controlled substance 
dispensings, and recommended that a new UR be obtained, and (2) it was 
also ten months since Respondent had obtained the last UR. Moreover, 
the order was not reported as suspicious.
    An MFR note made the next day states: ``compliance hold until ur 
updated provided.'' RX 2C, at 2. On August 11, Englewood provided 
Respondent with a UR for the month of July 2010. Id. at 13.
    The UR showed that Englewood had dispensed 204,291 du of oxycodone 
30 (including 80 du of Roxicodone 30) and 15,210 du of oxycodone 15 
(including 60 du of Roxicodone 15) during the month. Id. at 13, 28-29. 
It also showed significant dispensings of other oxycodone products, as 
well as other schedule II drugs and schedule IV benzodiazepines.\90\ 
Notably, Englewood's total dispensings of all prescriptions drugs 
totaled 519,071 du. Id. at 32. Moreover, with the exception of 
carisoprodol, each of the top ten drugs dispensed by quantity was an 
oxycodone product, methadone, or alprazolam, and of the top 20 drugs 
dispensed, the only other non-controlled drug was albuterol. Id. at 13.
---------------------------------------------------------------------------

    \90\ As for other oxycodone products, Englewood dispensed 13,436 
du of OxyContin 80; 7,266 du of OxyContin 40; 2,025 du of OxyContin 
60; 800 du of OxyContin 30; 644 du of OxyContin 20; 70 du of 
OxyContin 10. See RX 2C, at 13-15, 28. It also dispensed 12,183 du 
of Endocet 10/325; 2,250 du of oxycodone 20; 710 du of Endocet 10/
650; 594 du of oxycodone 5/325; 402 du of oxycodone 5; 140 du of 
oxycodone 7.5/500; 90 du of oxycodone 7.5/325; and 120 du of Endodan 
(oxycodone and aspirin). See id. at 13, 15-16, 18-19, 22, 24-25. Its 
total dispensings of oxycodone came to nearly 258,000 du.
     It also dispensed 53,583 du of methadone 10 mg; 20,407 du of 
alprazolam 2 mg; and 9,899 of alprazolam1 mg. See id. at 13.
---------------------------------------------------------------------------

    Notwithstanding the information provided by the UR, on August 23, 
Respondent filled an additional order for 13,000 du of oxycodone 30. GX 
10F, at 17. MFR notes of the same date state: ``250 oxy 30 mg currently 
at 50k[.] CSL is 63k,'' and ``Edited oxy from 250 to 130.'' RX 2C, at 
1; see also GX 18, at 165 (SOMS notes entry dated Aug 23: ``order 
edited per mfr''). On a rolling 30-day basis, Englewood's orders 
totaled 88,000 du (25,000 du more than its CSL), and even after Ms. 
Seiple edited the order, Englewood's orders still exceeded its CSL by 
13,000 du.
    On September 10, Respondent filled an order for 50,000 du of 
oxycodone 30. GX 10F, at 17. While this order did not place Englewood 
over its CSL, a SOMS note establishes that on September 27, 2010, 
Englewood ordered an additional 18,000 du of oxycodone 30. GX 18, at 
165. Ms. Seiple edited the order ``from 180 to 130 for csl on oxy,'' 
id., and Respondent shipped 13,000 du to Englewood. GX 10F, at 17.
    However, once again, Englewood had placed an order that exceeded 
its CSL, and once again, Respondent failed to obtain an explanation for 
the order and to report the order as suspicious.
    The next day, Respondent filled orders for 1,200 du of oxycodone 20 
mg and 600 du of oxycodone 10 mg, bringing its rolling 30-day total to 
64,800 du and over its CSL. GX 10F, at 17. While the orders were held 
for review, the orders were released with the SOMS note stating: ``ok 
to ship with reservations [sic] first time purchase on Oxy since 
2009.'' GX 18, at 165. Yet, as found above, Englewood had repeatedly 
purchased oxycodone from Respondent throughout 2010. Once again, 
Respondent did not obtain an explanation for the order and failed to 
report it as suspicious.
    On October 6, 2010, Respondent performed another site visit at 
Englewood. RX 2C, at 5-7. According to the inspector's report, the PIC 
stated that he did not fill for out-of-state or out-of-area patients. 
Id. at 6. He also stated that 40 percent of the prescriptions it filled 
were for controlled substances, and 20 percent were for schedule II 
drugs. Id. at 6. After noting that the pharmacy had a ``small selection 
of OTCs,'' the inspector wrote the following:

    When I arrived I observed a man appearing to be in his mid 20's 
waiting in a KY licensed car in front of the store. While waiting I 
observed other men appearing to be in their late 20's to early 30's 
taking large trash bags out from the pharmacy to a dumpster. The men 
spoke to and went into the KY licensed vehicle. When leaving, I 
observed other men in their mid 30's in the pharmacy waiting area. A 
TN temporary licensed car was in the parking lot. There were no 
other businesses open near the pharmacy and open at that time. Front 
of store was designed more as a waiting room rather than a store 
front. Owner reported filling for patients from local Pain Clinic.

Id. at 7.
    An MFR note of October 7 states that the ``site visit [was] 
questionable,'' that the account needed to be reviewed, and that it was 
placed on compliance hold based on ``suspicious activity outside of 
pharmacy.'' RX 2C, at 1. The noted further stated that the account was 
terminated, and that when the decision was communicated, Respondent PIC 
``was upset'' and ``felt that [Respondent was] being a little harsh.'' 
Id.
    Regarding Respondent's sales to Englewood, Ms. Seiple offered 
testimony similar to that which she offered with respect to the 
pharmacies previously discussed. For example, she asserted that because 
the PIC had provided copies of its policies and procedures for 
preventing diversion and described them to Respondent, the ``Compliance 
Department believed that Englewood understood its obligations to 
prevent . . . diversion . . . and was taking affirmative steps to meet 
those obligations.'' RX 103, at 48-49. She further asserted that 
``before shipping any pharmaceutical products to Englewood, 
[Respondent] verified that its Florida pharmacy license and DEA 
registration were valid, current, and in good standing.'' Id. at 49. 
Yet Ms. Seiple made no claim that Respondent had verified the status of 
the PIC's license and there is no evidence that it ever did so.
    Next, Ms. Seiple asserted that because during the 2008 site visit, 
the PIC ``explained that Englewood's business model included servicing 
patients from two large hospitals and a number of [nearby] physician 
offices,'' as well as ``patients from several nearby pain clinics[,] . 
. . this accounted for the volume of pain medications and other 
controlled substances, including oxycodone, being dispensed relative to 
other drugs.'' Id. at 49. However, hospitals usually have their own 
pharmacies and, in any event, a pharmacy's mere proximity to a hospital 
does not explain why the quantity of oxycodone 30 prescriptions being 
dispensed at Englewood dwarfed the quantity of the most commonly 
prescribed non-controlled prescription drugs, such as those used to 
treat high cholesterol, hypertension, or hypothyroidism. See RX 81 
(showing top five prescription drugs from 2006 through 2010, which did 
not include oxycodone).\91\ So too, a pharmacy's mere proximity to 
buildings with doctors' offices falls well short of what is necessary 
to explain why a pharmacy's dispensings of oxycodone

[[Page 55449]]

30 prescriptions dwarf its dispensings of non-controlled prescription 
drugs.
---------------------------------------------------------------------------

    \91\ As Respondent's Exhibit 81 shows, while combination 
hydrocodone drugs were the most frequently prescribed drugs during 
2008 through 2010, the next most frequently prescribed drugs were 
non-controlled drugs including Lipitor (a statin), Simvastatin, 
Lisinopril, Levothyroxine, and Azithromycin.
---------------------------------------------------------------------------

    While it is true that Respondent's consultant also obtained the 
names of six pain clinic doctors, two of these doctors were located in 
Sarasota, which is more than 47 miles from Port Charlotte.\92\ See 
http://maps.randmcnally.com/mileage-calcualtor.do. Moreover, there is 
no evidence that Respondent verified the licensure and registration 
status of any of these doctors, let alone whether they had any 
specialty training or board certification in pain management.
---------------------------------------------------------------------------

    \92\ Pursuant to 5 U.S.C. 556(e), I take official notice of the 
distance between Port Charlotte and Sarasota as determined by using 
the online Rand McNally mileage calculator. Pursuant to 21 CFR 
1316.59(e), Respondent may dispute this finding by filing a properly 
supported motion no later than 10 days from the date of this Order.
---------------------------------------------------------------------------

    Ms. Seiple further asserted that ``[a]fter Englewood's account was 
approved, [the] SOMS . . . identified and held any order for controlled 
substances placed by Englewood that deviated from its typical volume, 
pattern or frequency'' and that ``[a]ll such orders were released only 
after review by [the] Compliance Department.'' RX 103, at 49. As 
explained previously, this statement is misleading because the SOMS was 
not even operational until August 2009. Moreover, notably absent from 
this paragraph of Ms. Seiple's declaration is any claim that the 
Compliance Department's employees followed the policies and procedures 
which required contacting the pharmacy and obtaining a reason for why a 
held order exceeded the SOMS parameters, followed by independently 
verifying that reason. As found above, Respondent's Compliance 
Department repeatedly failed to comply with its policies and 
procedures.
    While it is true that ``[o]n some occasions, the Compliance 
Department would request . . . a UR as part of its review of orders 
that had been held by the SOMS,'' the evidence shows that it obtained a 
new UR infrequently. As the evidence shows, after April 1, 2009, it did 
not obtain a new UR until October 5, 2009, at which point it had not 
obtained a new UR in more than a year, and it did not obtain the next 
UR until August 11, 2010, ten months later. Yet Respondent's policy 
required that it obtain a new UR whenever an order was held for review.
    As for Ms. Seiple's assertions that Respondent ``specifically 
investigated the reasons why Englewood's ordering and dispensings 
patterns were as indicated on the URs'' and that ``[b]ased on [its] 
extensive investigation, it determined that the orders it shipped to 
Englewood were not suspicious,'' id. at 50-51, it did no such thing. As 
an example, during the initial site visit, Respondent's consultant 
wrote that ``[h]e [the PIC] appears to be doing a larger narcotic 
business than he admits to.'' RX 2C, at 78. In her declaration, Ms. 
Seiple offered no explanation as to what was done in response to this 
observation, and her assertion that ``the URs and other information 
provided by Englewood were consistent with the pharmacy's business 
model as explained by Mr. Farris and confirmed in the November 2008 
site inspection'' is just one example as to how Respondent's Compliance 
Department simply accepted the inadequate explanations provided by its 
consultant and employees to support its continued selling of controlled 
substances to Englewood, while ignoring numerous red flags as to the 
legitimacy of the pharmacy's dispensings of controlled substances.
    Ms. Seiple provided still another example of this in her discussion 
of the Compliance Department's response to the January 2010 site visit 
by Mr. Chase. As found above, following the visit, Mr. Chase 
recommended that Respondent obtain a new UR and compare it with 
Englewood's claim that 40 percent of the prescriptions it dispensed 
were for control substances, which in Mr. Chase's view, was ``a little 
high.'' Respondent did not, however, obtain a new UR in response to his 
recommendation and failed to obtain a new UR until August 11, some 
seven months later.
    As with the pharmacies previously discussed, Ms. Seiple's 
explanation of this was that Respondent's policies and procedures did 
``not specify any particular percentage of controlled drugs to non-
controlled drugs that the Company considers `high' or `a little high,' 
'' and that ``Mr. Chase did not recommend that [Respondent] stop 
selling controlled drugs to Englewood following his inspection in 
January 2010.'' RX 103, at 51. Ms. Seiple's testimony fails to explain 
why the Compliance Department ignored Mr. Chase's recommendation to 
obtain a new UR and did not do so until seven months later.
    While Ms. Seiple acknowledged that Respondent was aware of the 
volume of oxycodone and other controlled substances being dispensed and 
the percentage of controlled drugs being dispensed relative to other 
drugs, id. at 50, there is no evidence in the Englewood file that 
Respondent ever actually calculated the ratio of its dispensings of 
oxycodone and controlled substances to other drugs. See generally RX 
2C. Indeed, throughout the course of its dealings with Englewood, its 
PIC repeatedly understated the level of its controlled substance 
(including its schedule II) dispensings and did so by a wide margin and 
Respondent was put on notice of this as early as the November 2008 site 
visit. RX 2C, at 78. The PIC's false statements as to the percentage 
levels of his controlled substances dispensings were another red flag 
that he was engaged in the diversion of controlled substances and the 
falsity of his representations could have been easily determined 
because the URs calculated the total number of prescriptions for each 
schedule of controlled substances and the non-controlled prescription 
drugs the pharmacy dispensed. Instead, Respondent's Compliance 
Department ignored available information (and failed to request 
information) which would have shown that the PIC was providing false 
information.
    It is true that after the October 6, 2010 inspection, during which 
Respondent's inspector observed that Englewood's clientele included 
persons who were driving vehicles with Kentucky and Tennessee license 
plates and who were engaged in suspicious activity (and yet was told by 
the PIC that he did not fill for out-of-state patients), Respondent 
finally made the decision to terminate Englewood. However, Englewood 
had been purchasing controlled substances (including oxycodone) from 
Respondent for at least two years at this point and yet, only in the 
face of the above, did it finally stop selling controlled substances to 
Englewood. The evidence thus suggests that Respondent's Compliance 
Department was primarily concerned with justifying the continued sale 
of controlled substances and not with identifying those entities that 
were engaged in diversion. Moreover, Respondent did not file a single 
suspicious order report during the course of its dealings with 
Englewood.

City View Pharmacy

    City View Pharmacy, a retail community pharmacy located in Orlando, 
Florida, opened in January 2005. RX 2D, at 74. While it is unclear when 
City View first became a controlled substance customer of Respondent, a 
Schedule Drug Limit Increase Request Form dated March 17, 2008, 
indicates that City View was seeking an increase in its purchasing 
limit for both alprazolam and solid dose oxycodone. Id. at 73. 
According to the form, City View was using 200 100-count bottles or 
20,000 du of oxycodone per month. Id.

[[Page 55450]]

    After verifying that City View held a DEA registration and state 
license, on March 25, Respondent contacted City View and prepared a DEA 
Schedule Order-Due Diligence Report Form; it also obtained from City 
View a State Inspection Report and a UR. According to the Due Diligence 
Report Form, City View reported that it filled 80 prescriptions per 
day, that 60 percent of the prescriptions were for controlled drugs, 
and 40 percent were for schedule II drugs. Id. at 74. City View also 
reported that it accepted insurance and well as Medicare and Medicaid 
and that 80 percent of the prescriptions were paid for by insurance. 
Id. As for its policies and procedures, City View's pharmacist 
represented that to prevent doctor shopping, it worked ``mainly'' 
``with three doctors,'' and that it ``call[ed] any new doctors.'' Id. 
As for how it ensured that doctors exercised proper standards of care, 
City View's pharmacist stated that he called a pain management clinic. 
Id. As for whether he had ever refused to fill a prescription, City 
View's pharmacist represented that he did so ``all the time'' as he 
required the patients to present a driver's license and would refuse to 
fill the prescriptions ``if they don't supply it.'' Id. at 75. Finally, 
City View's pharmacist represented that he refused prescriptions 
written by physicians who had problems with their DEA registrations or 
other disciplinary actions. Id.
    The UR provided by City View covered the month of February 2008, 
and showed that the pharmacy had dispensed a total of 101,908 du of all 
prescription products. Id. at 100. The UR further showed that during 
the month, City View dispensed 150 prescriptions totaling 24,928 du of 
oxycodone 30, an average of 166 du per prescription. Id. at 97. It also 
showed that City View dispensed 20 prescriptions for 2,300 du of 
oxycodone 15, as well as 32 prescriptions totaling 3,525 du of Endocet 
10/325.\93\ Id. at 92, 97. In total, City View dispensed more than 
36,000 du of oxycodone products (35.5 percent of all its dispensings), 
and its dispensings of oxycodone 30 alone accounted for more than 24 
percent of its dispensings. Indeed, the UR showed that the next largest 
drugs dispensed were two other highly abused drugs: Alprazolam 2 mg 
(6,940 du), a schedule IV controlled substance, and carisoprodol 350 mg 
(5,609 du dispensed), a drug which was then controlled under Florida 
law and which has since been controlled under the CSA. See id. at 89, 
91.
---------------------------------------------------------------------------

    \93\ As for other oxycodone products, the UR showed that City 
View dispensed 1,310 du of OxyContin (and generic OxyContin) 40 mg, 
990 du of OxyContin (and generic OxyContin) 80 mg, 906 du of 
oxycodone 5 mg, 1,035 du of Endocet 5/325, 300 du of Endocet 10/650 
mg, 240 du of OxyContin 20 mg, 210 du of Endocet 7.5/325 mg, 200 du 
of Endocet and generic oxycodone 7.5/500 mg, and 38 du of oxycodone/
apap 5/500. RX 2D, at 92, 97.
---------------------------------------------------------------------------

    As found above, City View also provided Respondent with a copy of a 
Florida Department of Health inspection report dated November 29, 2006. 
Id. at 76. The Report identified multiple deficiencies, including that 
City View did not maintain ``[c]omplete pharmacy prescription records'' 
and the ``[p]rescription records did not identify the responsible 
dispensing pharmacist''; the pharmacist was not initialing the 
controlled substance prescriptions (as well as the refills) that were 
filled; DEA Schedule II order forms were not being properly completed; 
and several controlled substance prescriptions were missing required 
information such as the prescriber's name, address and DEA number as 
well as the patient's name and address. Id. at 76.
    On June 25, Respondent's consultant conducted an onsite inspection 
of City View. Id. at 104. According to the consultant's report, City 
View represented that it had purchased drugs from five different 
distributors including Respondent during the past 24 months. Id. at 
105. It also represented that it filled an average of 100 to 120 
prescriptions per day, that 35-40 percent of the prescriptions were for 
controlled substances, and that only 20 percent of the prescriptions 
were paid for with cash. Id. at 106. It also acknowledged that it 
filled for pain management clinics and identified six physicians and 
their DEA numbers.\94\ The consultant also reported that City View was 
located next door to the Police Department and that this ``does tend to 
keep some of the drug abusers away according to the pharmacist.'' Id. 
at 108.
---------------------------------------------------------------------------

    \94\ With respect to whether the pharmacy serviced nursing 
homes, hospices, and inpatient facilities, the consultant wrote the 
word ``pending'' next to each of these categories and did not 
identify a single such facility which City View actually serviced. 
RX 2D, at 106.
---------------------------------------------------------------------------

    Finally, the consultant noted that the pharmacy was willing to 
provide a copy of its most recent state inspection report, and a report 
dated May 1, 2008 is in the due diligence file. Id. at 105, 109. 
Notably, while the report showed that several of the deficiencies 
identified at the previous inspection had been corrected, City View's 
pharmacist was still not properly completing the Schedule II order 
forms. Id. at 109. Several weeks later, on July 1, 2008, Respondent 
approved City View to purchase 25,000 du of oxycodone per month. Id. at 
73.\95\
---------------------------------------------------------------------------

    \95\ A note on the Schedule Drug Limit Increase Request Form 
indicates that Respondent did not approve City View's request to 
purchase alprazolam because it was ``too new'' a customer. RX 2C, at 
73. Unexplained is why City View was not too new a customer to 
purchase oxycodone.
---------------------------------------------------------------------------

    In April 2009, Respondent filled orders placed by City View for 
18,500 du of oxycodone 30 and 1,200 du of oxycodone 15, and in May, it 
filled orders for 24,000 du of oxycodone 30 and 1,000 du of oxycodone 
15. GX 10F, at 3-4. In June, Respondent filled orders for 28,000 du of 
oxycodone 30 and 2,000 du of oxycodone 15 (as well as 200 oxycodone 
80), followed by orders in July for 26,000 du of oxycodone 30; 3,000 du 
of oxycodone 15; 1,000 du of Endocet 10/325; and 300 du of oxycodone 80 
mg. Id. at 3-5.
    On August 3, 2009, Respondent filled orders placed by City View for 
20,000 du of oxycodone 30, as well as 2,400 du of oxycodone 15. Id. at 
3. A note in the Ship to Memos added by Ms. Seiple on August 5 states: 
``8/3/09 please keep on hold until UR is received per file.'' GX 19, at 
111. Of note, Respondent had not obtained a new UR since February 2008 
and would not do so until October 5. RX 2D, at 5-6. Yet, on August 25--
a week after it had presented its Policies and Procedures to the DIs--
Respondent filled City View's order for an additional 7,600 oxycodone 
30, GX 10F, at 3, bringing its total filled orders on a rolling 30-day 
basis to 33,000 du, even though it had not received a new UR.\96\ 
According to a SOMS note for this order, the order was ``ok to ship'' 
because it was at City View's ``oxy limit for the month.'' GX 19, at 
118.
---------------------------------------------------------------------------

    \96\ City View had placed an order for 3,000 du of oxycodone 30 
on July 28, thus bringing the rolling 30-day total to 33,000 du. GX 
10F, at 3.
---------------------------------------------------------------------------

    Yet on September 1, 8, and 14, Respondent filled three separate 
orders by City View for 10,000 du of oxycodone 30, notwithstanding that 
Respondent had yet to receive a UR and the account was supposedly on 
hold. GX 10F, at 3. As for the September 1 order, it placed City View's 
oxycodone orders at 40,000 du on a rolling 30-day basis and thus over 
the previously noted limit. Yet the order was released by Ms. Seiple, 
who noted in the SOMS that it was ``under current limit.'' GX 19, at 
118. And while it is clear that the order was held for review, there is 
no evidence that Respondent contacted City View and obtained an 
explanation for the order.
    The September 8 order did not place City View over the CSL. 
However, with the September 14 order, City View's oxycodone orders 
totaled 37,600 du on

[[Page 55451]]

a rolling 30-day basis. A SOMS note establishes that Ms. Seiple 
released the order and provided the following reason: ``ok to ship puts 
them at their current limit.'' GX 19, at 119. Here again, 
notwithstanding Respondent's purported policies and procedures, there 
is no indication that City View was contacted to provide an explanation 
for the order, which was then independently verified, and Respondent 
still had not obtained a new UR.
    Moreover, according to an MFR noted dated September 23, City View 
placed an additional order for 10,000 du of oxycodone 30 mg which 
Respondent deleted. RX 2D, at 6. The note further states that City 
View's ``calendar limit [was] 30,000'' and that it had ``already 
received 37,600 within 30 days.'' Id.
    A second MFR note of the same date shows that Ms. Seiple called 
City View's pharmacist a second time that day and that the pharmacist 
stated that he ``did not want the 100 bottles only [the] hydromorphone 
8mg.'' Id. Ms. Seiple further documented that she ``tried to get info'' 
but the pharmacist said he had to go, and that after she ``asked him to 
call [her] back,'' the pharmacist said he would ``and hung up.'' Id. 
Ms. Seiple then documented that she had talked to Mr. Corona about the 
situation and was told to place City View ``on compliance hold.'' Id. 
The same day, Ms. Seiple also made a note in the Ship to Memos for the 
account, which states: ``Need to have an updated survey and UR before 
ordering any CONTROLS.'' GX 19, at 111. Yet the order was not reported 
as suspicious.
    An MFR note dated September 28 made by Ms. Seiple again 
acknowledged that Respondent did not have a current UR on file. RX 2D, 
at 6. The note further states: ``put 1k pills for oxy back in today'' 
and refers to Ms. Seiple's having called another employee of 
Respondent, and that the employee was ``getting'' with City's View 
pharmacist. Id. According to a note made the next day, this order was 
placed on hold. Id. However, notwithstanding that City View was on 
compliance hold, on October 1--and before City View provided a new UR--
Respondent filled an order for 2,000 tablets of hydrocodone/apap 10/500 
mg. GX 10F, at 5. Moreover, there is no evidence that Respondent did a 
new due diligence survey.
    The evidence also suggests that on or about October 1, City View 
placed an order for 10,000 du of oxycodone 30. Specifically, a Ship to 
Memo dated October 2, 2009 by Ms. Seiple states: ``TIL ur IS RECEIVED 
THE ORDER WAS DELETED FOR OXY 30 100 BOTTLES.'' GX 19, at 111; see also 
RX 2D, at 5 (MFR note dated October 1 noting that message was left for 
pharmacist ``to call me back need UR or order will not ship & will be 
deleted'').
    On October 5, Respondent finally obtained a new UR from City View. 
RX 2D, at 5-6. The UR showed that during the month of September, City 
View dispensed 324 prescriptions totaling 47,472 du of oxycodone 30, an 
average of 146.5 du per prescription, as well as 30 prescriptions 
totaling 3,505 du of oxycodone 15, an average of 124 du per 
prescription. RX 2D, at 62-71. City View's dispensings of all 
prescription products totaled 116,180 du. Thus, oxycodone 30 alone 
comprised nearly 41 percent of City View's total dispensings. Moreover, 
the top ten drugs dispensed were comprised entirely of three oxycodone 
products (oxycodone 30, oxycodone 15, and 2,340 du of Endocet 10/325), 
four alprazolam products (9,722 du of four different manufacturers' 
version of 2 mg dosage and 1,230 du of one manufacturer's 1 mg tablet), 
carisoprodol 350 mg (5,124 tablets), and hydrocodone/apap 10/500 (2,423 
tablets). See id.
    A second MFR note dated October 5 states that Respondent was 
``shipping 100 bottles'' and that the order had been put in the same 
day. RX 2D, at 5. The note further states: ``however, his limit is 
30,000 current limit No.'' Id. A Ship to Memo note of the same date 
states: ``Released oxy order for 100 bottles based on UR and clean 
file.'' GX 19, at 111. Thereafter, Respondent filled additional orders 
by City View for 10,000 du of oxycodone 30 on both October 12 and 20. 
GX 10F, at 3.
    On October 29, City View placed still another order for oxycodone 
30 mg. GX 19, at 111; RX 2D, at 5. According to both the Ship to Memos 
and MFRs, City View's oxycodone order was edited off the order. See id. 
Ms. Seiple further noted that City View's oxycodone limit needed ``to 
be reviewed'' because the pharmacy ``only buys 30 mg Mall,'' \97\ that 
the ``UR is 46k as of September,'' and added, ``decrease limit to 20k 
see Wayne.'' See id. However, the same entry then contains an 
additional note (in different color ink) that: ``No limit is 30k--
please call,'' and further noted that an employee had spoken with City 
View's pharmacist and that oxycodone had been ``cut from order.'' RX 
2D, at 5.
---------------------------------------------------------------------------

    \97\ This is likely an abbreviation for Mallinckrodt, a 
manufacturer of controlled substances. Other evidence establishes 
that Respondent distributed oxycodone manufactured by Mallinckrodt.
---------------------------------------------------------------------------

    While it is unclear what the size of the order was, it is clear 
that the order would have placed City View's oxycodone orders over its 
30,000 du CSL on a rolling 30-day basis. Yet Respondent did not report 
the order as suspicious.
    On November 2 and 6, Respondent filled orders totaling 10,000 du of 
oxycodone 30 on each date. GX 10F at 3. Even ignoring the deleted order 
of Oct. 29, each of the orders placed City View's orders at 40,000 du 
on a rolling 30-day basis.
    As for the November 2 order, a SOMS note made by Ms. Seiple states: 
``ok to ship is provided non control business per committee limit 
22500.'' GX 19, at 119. Entries in the MFRs and Ship to Memos show that 
on either November 3 or 4, the compliance committed had conducted a 
review and reduced City View's oxycodone limit by 25 percent to 22,500 
du. RX 2D, at 5; GX 19, at 112. As for the November 6 order, the 
corresponding SOMS notes states: ``ok to ship oxycodone @20k with this 
order--within size for current period.'' GX 19, at 120. However, 
whether City View's oxycodone CSL was 22,500 du or 30,000 du, the 
orders clearly exceeded the CSL and yet there is no evidence that 
Respondent contacted the pharmacy and obtained an explanation for the 
November 2 and 6 orders and a new UR. Nor did it report the orders as 
suspicious.
    On November 16, City View placed an order for 10,000 du of 
oxycodone 30. See RX 2D, at 4 (MFR note: ``release 25 Qty. requested 
100.0--limit of oxy @22,500''). While Respondent edited the order and 
only shipped 2,500 du, id., the order still placed City View's orders 
at 40,000 du on a rolling 30-day basis. GX 10F, 3; see also GX 19, at 
120. (SOMS note: ``ok to ship--oxy revised to 25.0 to met [sic] current 
size allotment'').
    Here again, City View had placed orders which, on a rolling 30-day 
basis, exceeded the CSL. Yet there is no evidence that Respondent 
obtained an explanation for the order from the pharmacy and a new UR. 
Nor was the order reported to DEA as suspicious.
    Moreover, on December 1, 2009, Respondent filled two orders 
totaling 20,000 du of oxycodone 30. GX 10F, at 3. With these orders, 
Respondent had filled orders totaling 42,500 du on a rolling 30-day 
basis. A SOMS note of the same date states: ``ok to ship-oxy within 
size for period @10K with this order.'' GX 19, at 120. The same 
reviewer made a second SOMS note, which, while bearing the date of 
``11/24/09,'' is interspersed between the above note and another note 
of ``12/1/09'' which states: ``ok to ship oxy @20K with this order for 
period 12-1-09.'' Id. Notwithstanding that City View had

[[Page 55452]]

again clearly exceeded its CSL, there is no evidence that Respondent 
contacted City View to obtain a reason for the orders and a new UR. Nor 
did it report the orders as suspicious.
    On December 14, Respondent filled an additional order for 2,500 du 
of oxycodone 30. GX 10F, at 3. Thereafter, on January 4 and 11, 2010, 
it filled orders for 10,000 du of oxycodone 30 on each date, followed 
on January 19 by an additional order for 2,500 du of oxycodone 30, for 
a monthly total of 22,500 du. Id.
    On February 1, 8, and 18, Respondent filled three separate orders 
for 10,000 du of oxycodone 30. Id. Upon filling both the Feb. 1 and 8 
orders, Respondent had shipped 32,500 du on a rolling 30-day basis and 
thus exceeded the CSL whether it was set at 22,500 or 30,000 du.\98\ 
However, the SOMS note for the Feb. 1 and 8 orders respectively state: 
``ok to ship, under the CSL'' and ``ok to ship oxy under csl.'' GX 19, 
at 113.
---------------------------------------------------------------------------

    \98\ Both SOMS notes and an MFR note indicate that City View 
also placed an order for 2,000 du of oxycodone on February 16. See 
GX 19, at 113 (``ok to ship, under the CSL of 22,500 on OXY, this 
order puts them at 22,000 for the month''); RX 2D, at 4 (``Order for 
2000 oxy CSL 22,500 already ordered 20,000 this month. This order 
puts them at 22,000 for the month.''). The ARCOS report does not, 
however, list an order on either this date or of this size as having 
been filled by Respondent. GX 10F, at 3-5.
---------------------------------------------------------------------------

    Of note, on February 17, 2010, Mr. Chase conducted a site visit at 
City View. According to his report, City View filled an average of 100 
prescriptions per day, with controlled substances comprising 30 percent 
of the prescriptions. RX 2D, at 43. Mr. Chase reported that schedule II 
controlled substances comprised 15 percent of all prescriptions. Id. 
While Mr. Chase reported that City View appeared to be a full service 
pharmacy with a ``good selection'' of front store items, he did not 
document that City View serviced any pain clinics. Id. at 40, 45.
    While on the Site Visit Recommendation Form, Mr. Chase checked that 
the site visit was acceptable, he also recommended that a new 
utilization report be obtained, noting that controlled substances were 
30 percent of City View's dispensings. Id. at 40. And on the 
Recommendation Form, Mr. Chase further wrote: ``We Need A Utilization 
Report & Compare it to Site Visit.'' Id.
    As for the Feb. 18 order, an MFR entry dated February 18 states: 
``Order for 10,000 Oxy 30 mg CSL Is 22,500, already at 20,000 this 
month--last order on Oxy 30 was 2/8/10 + 2/1/10.'' RX 2D, at 4. An 
additional entry below the above states: ``limit approved on 10/09 for 
30k'' and ``order would be 2500 over thus releasing w/reservation.'' 
Id. And a separate MFR note of the same date states: ``shipped 10k w/
reservation CSL @32500'' and ``Must be reviewed w/committee along w/
[illegible].'' RX 2D, at 5. Additional notes in the same entry state: 
``30k on oxy'' and ``CSL for month @[ ] 15k.'' Id.
    As for the February 1 and 8 orders, while they clearly exceeded the 
CSL--indeed, during this period, Respondent's records repeatedly 
indicate that the CSL was 22,500 du and do so even in notes made after 
the Feb. 18 MFR entry--there is no evidence that Respondent complied 
with its policies and procedures by contacting the pharmacy and 
obtaining an explanation for the increase in its orders, which was then 
independently verified. Nor did Respondent obtain a new UR. Moreover, 
Respondent provided no explanation at the hearing as to why the SOMS 
notes state that the CSL was 22,500 but then was suddenly increased to 
32,500 du on February 18. As these notes indicate, Respondent simply 
ignored the CSL and manipulated it to justify the distributions.
    There is also no evidence that Mr. Chase's site visit and 
recommendation were reviewed before the February 18 order was shipped. 
Indeed, a SOMS note of February 23 clearly suggests that the site visit 
report and recommendation were not reviewed until that date. GX 19, at 
112. Significantly, this note also states: ``CR [compliance review]--CH 
[compliance hold] UR on file needs to be reviewed with site visit.'' 
Id.
    Here again, there is no indication that the previous UR was 
reviewed and compared with the information Mr. Chase had reported as to 
the percentage of City View's dispensings comprised by controlled 
substances and the percentage comprised by schedule II drugs. As for 
the recommendation that a new UR be obtained, Respondent did not obtain 
a new UR until late April, more than two months later.
    On March 3, Respondent filled an order for 10,000 du of oxycodone 
30, which according to the SOMS was released, with the reason being 
that it was ``under csl.'' GX 10F, at 3; GX 19, at 114.
    On March 12, Respondent filled an additional order for 10,000 du of 
oxycodone 30. GX 10F, at 3. The SOMS note of this date states: ``ok to 
ship, under the CSL of 22,500, this is their 2nd order for 10k OXY 30mg 
this month.'' GX 19, at 114. See also RX 2D, at 3 (MFR note: ``Order 
for 10,000 Oxy 30 mg--this order is under CSL of 22,500 they purchased 
30k last month.''). However, the March 12 order placed City View's 
orders at 30,000 du on a rolling 30-day basis, and thus the order 
actually placed City View above the CSL level referred to in the SOMS 
note. A March 15 MFR note by Ms. Seiple justified the shipment stating: 
``order above supported by UR and last month of 30k supported by UR per 
committee.'' RX 2D, at 3. Notably, Ms. Seiple did not state that 
Respondent had contacted the pharmacy and obtained an explanation for 
the order as well as a new UR.
    On March 18, Respondent shipped a new order for 10,000 du of 
oxycodone 30. GX 10F, at 3. A SOMS note of this date states: ``ok to 
ship, order supported by UR on the OXY, this order for 10k puts them at 
30K for the month.'' GX 19, at 114. However, when added to the previous 
orders Respondent shipped to City View on February 18, as well as March 
3 and 12, each of which was for 10,000 du, Respondent had shipped 
40,000 du on a rolling 30-day basis, and thus again exceeded the CSL, 
whether it was set at 22,500 or 30,000 du. Once again, there is no 
evidence Respondent contacted City View and obtained an explanation for 
the order and a new UR.
    On March 22, Respondent filled an order for 1,200 du of oxycodone 
30, thus bringing City View's rolling 30-day total to 31,200 du. GX 
10F, at 3. Various notes explain that the order was released because it 
was supported by the UR, even though Respondent still had not followed 
the recommendation of its inspector to obtain a new UR and the previous 
UR was nearly six months old. RX 2D, at 3; GX 19, at 114.
    Two days later, Respondent filled an order for an additional 10,000 
du of oxycodone 30. GX 10F, at 3. The corresponding notes states: ``ok 
to ship, CSL is 22,500, they have already purchased 31,200 this month, 
this order is for 10K, putting them at 41200 for the month, UR supports 
order see file.'' GX 19, at 114. Here again, there is no evidence that 
Respondent obtained an explanation from City View's pharmacist 
regarding the increase in its orders (which it independently verified) 
and obtained a new UR. Nor did it report the order as suspicious even 
though the order placed City View's orders at nearly double its CSL.
    Moreover, on March 27 (a Saturday), City View placed two orders, 
each being for 10,000 du of oxycodone 30. GX 19, at 114; RX 2D, at 3. 
City View's orders thus totaled 61,200 du on a rolling 30-day (as well 
as on a calendar month) basis, and were nearly three times the CSL and 
more than double the previous highest month's shipments. While on March 
29 Respondent shipped only 10,000 du, it again justified the

[[Page 55453]]

shipment on the ground that the ``UR supports release--places CSL 
@51,200 for current period.'' RX 2D, at 3; GX 10F, at 3.
    An MFR note corresponding to the second March 29 order states that 
Respondent called City View's pharmacist, who ``said that he placed 
this order to be released on April 1, 2010, please hold order until 4/
1/10.'' RX 2D, at 3. While that may be, Respondent did not document 
that it questioned the pharmacist about the order it did fill that day, 
notwithstanding that the orders it filled during March represented a 
more than 70 percent increase from the previous month's orders, and it 
also failed to obtain a new UR. Nor did Respondent report the orders as 
suspicious. Yet here again, City View's CSL was increased even though 
Respondent repeatedly failed to follow its own policies and procedures 
for verifying the legitimacy of the pharmacy's orders.
    In April, Respondent continued its practice of failing to follow 
its policies and procedures when City View's oxycodone orders clearly 
exceeded the CSL. On April 1, Respondent filled the order for 10,000 du 
of oxy 30 which City View had previously submitted. GX 10F, at 4. Even 
assuming that Respondent had a valid basis for resetting City View's 
oxycodone CSL to 51,200 du based on the March shipments, upon filling 
this order, Respondent had shipped 61,200 du of oxycodone 30 on a 
rolling 30-day basis. GX 10F, at 3-4. Yet the MFR note corresponding to 
the order states only that ``order was released from 3/29'' and the 
SOMS note states: ``ok to ship-oxycodone within csl for period.'' RX 
2D, at 3; GX 19, at 114.
    On April 5, Respondent filled another order by City View for 10,000 
du of oxycodone 30. GX 10F, at 4. Here again, upon filling the order, 
Respondent had shipped 61,200 du to City View on a rolling 30-day basis 
and City View's orders exceeded the CSL. Id. Yet Respondent's records 
contain no documentation to explain why it shipped the order. See 
generally RX 2D, at 1-6 (MFRs); GX 19, at 111-12 (Ship to Memos); id. 
at 114 (SOMS notes during relevant time period). Indeed, there is no 
SOMS entry for April 5 and the next SOMS entry (April 8) does not 
contain the name of a reviewer and a reason, thus indicating that the 
order (whether it was for oxycodone or some other drug) was not 
reviewed.
    So too, on April 12, Respondent filled a further order by City View 
for 10,000 du of oxycodone 30. GX 10F, at 4. Here again, upon filling 
the order, Respondent had shipped 61,200 du of oxycodone 30 to City 
View on a rolling 30-day basis. Id. The SOMS note for the transaction 
states: ``ok to ship, OXY 30mg, already purchased 20K this month this 
order is for 10K putting them at 30K for the month UR supports order 
(4/12/10) (last month they were at 51200).'' GX 19, at 114. Here again, 
while the order exceeded the CSL, there is no evidence that Respondent 
contacted the pharmacy to obtain an explanation for the order and a new 
UR.
    On April 19, Respondent filled a further order by City View for 
10,000 du of oxycodone 30. GX 10F, at 4. Here again, upon filling the 
order, Respondent had shipped 61,200 du of oxycodone 30 to City View on 
a rolling 30-day basis. Id. The MFR note pertaining to the order 
states: ``released order for 10k Oxy 30mg, with this order they are at 
40k for the month,'' RX 2D, at 3; and the SOMS note states: ``puts them 
at 40k for the month, UR soppurts [sic] order (4/19/10).'' GX 19, at 
114. Again, there is no evidence that Respondent obtained an 
explanation for the order and a new UR from City View.
    On April 21, Respondent filled an order by City View for 2,000 du 
of oxycodone 15 mg, and on April 22, it filled an order for 2,000 du of 
oxycodone 30. GX 10F, at 4. Upon filling the April 21 order, Respondent 
had shipped 62,000 du within the rolling 30-day period, and on filling 
the April 22 order, it had shipped 64,000 du within the rolling 30-day 
period. GX 10F, at 3-4. A SOMS note dated April 21 simply says ``ok to 
ship,'' \99\ and two SOMS notes dated April 22 state: ``ok to ship-
oxycodone increase released off ur support'' and ``ok to ship-oxycodone 
increase-current ur supports.'' GX 19, at 114.
---------------------------------------------------------------------------

    \99\ While this note does not refer to a specific drug, it is 
the only SOMS note dated April 21, 2010. GX 19, at 114.
---------------------------------------------------------------------------

    However, at this point, the most recent UR was more than six months 
old, and neither note acknowledges that City View's orders were more 
than 10,000 du over the purported CSL. And once again, there is no 
evidence that Respondent obtained an explanation for the order and a 
new UR from City View.
    On April 26, Respondent filled an order by City View for 10,000 du 
of oxycodone 30, thus again resulting in the rolling 30-day total of 
orders (and shipments) of 64,000 du. GX 10F, at 3-4. An MFR note 
discussing the order explains: ``Order for 100--Oxy 30mg already at 
44,000 this month[.] [T]his order will put them at 54,000[,] most they 
have gotten was 51,200 (last month)[.] [C]alled to get an updated UR[.] 
TT [pharmacist] he will fax it over today.'' RX 2D, at 1. An additional 
MFR note of the same dates states: ``UR received--supports Oxy increase 
CSL @54k for current Period.'' Id.
    The UR covered March 1-30, 2010. RX 2D, at 26-34. However, the UR 
was clearly incomplete as it did not list the total number of 
prescriptions and dosage units which were dispensed during the period. 
Compare id. at 34, with id. at 71 (last page of March 09 UR providing 
this information) and id. at 100 (last page of Feb. 08 UR providing 
this information). However, a Diversion Investigator calculated the 
total dispensings listed on the UR at 178,458 du. GX 49B, at 53.
    The UR showed that City View had dispensed 586 prescriptions 
totaling 93,943 du of oxycodone 30 during the period as well as 98 
prescriptions totaling 10,746 du of oxycodone 15.\100\ Id. at 32-33. Of 
consequence, City View's dispensings of oxycodone 30 had nearly doubled 
from the amount on the previous UR (47,472 du) and comprised more than 
52.5 percent of its total dispensings. The UR also showed that City 
View's dispensings of oxycodone 15 had more than tripled from the 
amount on the previous UR (3,715 du). And the UR further showed that 
City View's dispensings of alprazolam 2 mg, another controlled 
substance highly sought after by narcotic abusers for use as part of a 
drug cocktail, now totaled 19,738 du, more than double the amount on 
the previous UR (9,722). Id. at 26.
---------------------------------------------------------------------------

    \100\ In contrast to the previous UR which ranked City View's 
dispensing by the quantity dispensed for each drug by NDC, this UR 
listed the drugs in alphabetical order. Compare RX 2D, at 26-34, 
with id. at 62-71.
---------------------------------------------------------------------------

    However, here again, notwithstanding that its policies and 
procedures required Respondent to obtain a reason for why City View's 
order exceeded the CSL, and also required a review of its file to 
determine whether the order was ``consistent with legitimate business 
practices,'' RX 78, at 32-33; Respondent ignored this information and 
shipped the order. It also failed to report the order as suspicious.
    On May 5, Respondent filled an order for 10,000 du of oxycodone 30; 
on May 10, it filled two orders totaling 20,000 du of oxycodone 30 as 
well as an order for 1,000 du of Endocet 10/325; and on May 18, it 
filled a further order for 10,000 du of oxycodone. GX 10F. at 4-5. Here 
again, even if the CSL had been raised to 54,000 du based on the April 
orders, upon filling the May 10 orders, City View's oxycodone orders 
totaled 65,000 du on a rolling 30-day basis and thus exceeded the CSL. 
Incredibly, a SOMS note of the same dates states: ``Ok

[[Page 55454]]

to ship-oxy within csl for period.'' GX 19, at 115.
    So too, upon filling the May 18 order, Respondent had shipped 
65,000 du of oxycodone to City View on a rolling 30-day basis and thus 
exceeded the CSL. Yet the corresponding SOMS note states: ``ok to ship 
undr [sic] CSL leave 10,200 for May on 5/18.'' Id. at 115. And a note 
in the Ship to Memos states: ``PER COMMITTEE CSL IS 51200 WHICH IS THE 
MARCH CSL. PLEASE DO NOT SHIP OVER 51200 WITHOUT REVIEWS.'' Id. at 111. 
See also RX 2D, at 1.\101\ While Respondent conducted a due diligence 
survey by telephone, even assuming that it considered the various 
statements discussed in the footnote to be the explanation for the 
order (such as that it was servicing two small nursing homes), there is 
no evidence that it independently verified any of these statements. Nor 
did it obtain a new UR. And it did not report the order as suspicious.
---------------------------------------------------------------------------

    \101\ On May 18, 2010, Respondent conducted an updated due 
diligence survey, apparently by telephone. RX 2D, at 38. According 
to the survey, City View reported that its daily prescription 
average was 100-120, that the ratio of controls to non-controls was 
30-70 percent, that it was near a medical center, and that it was 
now servicing two small nursing homes. Id. Here again, there is no 
evidence that Respondent attempted to verify City View's claims 
regarding the ratio of controlled to non-controlled drugs dispensed 
which was clearly inconsistent with the March 2010 UR. Nor did it 
inquire as to the names of the nursing homes City View was 
servicing, how many residents the homes had, and the types and 
quantities of prescriptions it filled for their residents.
---------------------------------------------------------------------------

    On June 1, 7, and 14, Respondent filled three separate orders for 
10,000 du of oxycodone 30 mg, for a total of 30,000 du for the month. 
GX 10F, at 4. A SOMS note of June 1 states that this order was 
``flagged for frequency'' but was released because the order was ``not 
excessive.'' GX 19, at 115. A subsequent MFR note states that 
Respondent decreased City View's allocation of oxycodone per policy. RX 
2D, at 1. The note, however, does not state what City View's new 
oxycodone CSL was.
    On June 28, Respondent performed a new site inspection of City 
View. See id. at 35-37. During the inspection, City View asserted that 
it filled ``only in town RX,'' that it filled an average of 100 
prescriptions per day, that 30 percent of the prescriptions were for 
controlled substances, and that 20 percent were for schedule II drugs. 
Id. at 36. The inspector reported that City View was located two blocks 
from a hospital and that there were pain clinics in the area. Id. at 
37. He also reported that City View appeared to have a full selection 
of pharmaceuticals available and that it had a limited supply of front 
store items. Id. Finally, he reported that business was ``slow while 
[he] was there'' and that he observed ``nothing untoward.'' Id.
    On July 1, Respondent filled an order for 10,000 du of oxycodone 
30, and on July 6, it filled orders for 5,000 more du of oxycodone 30 
and 2,000 du of oxycodone 15. GX 10F, at 4. An MFR note dated July 7 
states that the site visit was reviewed and that the account was placed 
on compliance hold pending the receipt of an updated UR and that the 
CSL was set at 28,700. RX 2D, at 1; see also GX 19, at 111 (noting 
compliance hold and that ``full ur for june is needed'').
    Notwithstanding this entry, Respondent did not obtain a new UR from 
City View until on or about December 2, nearly five months later. RX 
2D, at 7. According to the Ship to Memos, on July 13, Respondent 
conducted an account review using the previous UR and the recent site 
visit, after which it took City View off of the compliance hold and 
apparently maintained its CSL at 28,700 du. GX 19, at 111.
    Yet on July 13, Respondent also filled an order for 10,000 du for 
oxycodone 30, bringing City View's total filled orders to 37,000 du on 
a rolling 30-day basis. GX 10F, at 4. Respondent's records contain no 
explanation for why the order was shipped given that it placed City 
View's orders at more than 8,000 du above the new CSL and that City 
View had not provided a new UR.\102\ Nor was the order reported as 
suspicious.
---------------------------------------------------------------------------

    \102\ A Ship to Memo of the same date made by Ms. Seiple merely 
states: ``accoutn [sic] review using ur on file for 3/10 new site 
visit complete 6/28/10 maintaining soms csl.'' GX 19, at 111. A July 
12, 2010 SOMS note (there being no SOMS note for July 13) made by 
Ms. Seiple states: ``rwr order sitevisit [sic] and ur on fiel 
[sic].'' Id. at 116.
---------------------------------------------------------------------------

    Next, on July 28, Respondent filled an order for 1,700 more du of 
oxycodone 30. GX 10F, at 4. While City View's filled orders totaled 
28,700 du, a SOMS note of the same date states: ``rwr Oxy edited to 
meet CSL for July.'' GX 19, at 116. Here again, City View's oxycodone 
orders exceeded the CSL, and yet there is no evidence that Respondent 
obtained an explanation for the order as well as a new UR. Nor did it 
report the order as suspicious.
    In August, Respondent filled orders totaling 20,300 du, including 
15,000 du of oxycodone 30, and 3,000 du of oxycodone 15. GX 10F, at 4-
5. In September, Respondent filled orders totaling 28,700 du, including 
orders for 20,000 du of oxycodone 30; 7,600 du of oxycodone 15; and 
1,100 du of Endocet products. However, a SOMS note dated September 28 
(which corresponds to orders for 5,000 du of oxycodone 30 and 1,600 du 
of oxycodone 15) states that City View's order was ``edited to meet 
CSL,'' GX 19, at 117; and on a rolling 30-day basis, City View's 
oxycodone orders actually totaled 34,700 du.\103\ GX 10F, at 4-5. Here 
again, while the September 28 orders clearly placed City View over its 
CSL, there is no evidence that Respondent obtained an explanation for 
the orders and a new UR. And it also failed to report the orders as 
suspicious.
---------------------------------------------------------------------------

    \103\ In addition to the September orders, this total includes 
orders filled on August 30 for 5,000 du of oxycodone 30 and 1,000 du 
of oxycodone 15. GX 10F, at 4; GX 19, at 116.
---------------------------------------------------------------------------

    In October, Respondent filled orders placed on five different days 
totaling 29,300 du, including 20,000 du of oxycodone 30; 8,000 du of 
oxycodone 15; and 1,300 du of Endocet. GX 10F, at 4-5. Moreover, on 
each date, upon filling the orders, City View exceeded the CSL of 
28,700 du on a rolling 30-day basis.
    Specifically, on October 5, Respondent filled orders for 7000 du 
(5,000 oxycodone 30 and 2,000 oxycodone 15), bringing City View's 
rolling 30-day total to 35,300 du.\104\ Id. A SOMS note of this date 
simply states: ``ok to ship order for 20 OXY 15mg & 50 OXY 30mg is 
under CSL.'' GX 19, at 117.
---------------------------------------------------------------------------

    \104\ The total includes Sept. 9 orders for 7,400 du (5,000 
oxycodone 30; 2,000 oxycodone 15; and 400 Endocet 10/650); Sept. 16, 
orders for 7,000 du (5,000 oxycodone 30 and 2,000 oxycodone 15); 
Sept. 23 orders for 7,300 du (5000 oxycodone 30; 2,000 oxycodone 15; 
and 300 Endocet 5); and Sept. 28 order for 6,600 du (5,000 oxycodone 
30 and 1,600 oxycodone 15). GX 10F, at 4-5.
---------------------------------------------------------------------------

    On October 12, Respondent again filled orders for 7000 du (5,000 
oxycodone 30 + 2,000 oxycodone 15), bringing City View's rolling 30-day 
total to 35,200 du.\105\ GX 10F, at 4-5. The corresponding SOMS notes 
states: ``rwr Oxy under CSL leaves 14,400 as of 10/12.'' GX 19, at 117.
---------------------------------------------------------------------------

    \105\ The total includes Sept. 16 orders for 7,000 du (5,000 
oxycodone 30 and 2,000 oxycodone 15); Sept. 23 orders for 7,300 du 
(5000 oxycodone 30; 2,000 oxycodone 15; and 300 Endocet 5); and 
Sept. 28 order for 6,600 du (5,000 oxycodone 30 and 1,600 oxycodone 
15), and the October 5 orders for 7,000 du. GX 10F, at 4-5.
---------------------------------------------------------------------------

    On October 20, Respondent again filled orders for 7,000 du (5,000 
oxycodone 30 + 2,000 oxycodone 15), bringing City View's rolling 30-day 
total to 35,200.\106\ GX 10F, at 4-5. Here again, a SOMS note simply 
states ``oxy under csl.'' GX 19, at 117.
---------------------------------------------------------------------------

    \106\ The total includes the Sept. 23 orders for 7,300 du (5000 
oxycodone 30; 2,000 oxycodone 15; and 300 Endocet 5); the Sept. 28 
orders for 6,600 du (5,000 oxycodone 30 and 1,600 oxycodone 15), and 
the October 5 and 12 orders for 7,000 and 7,300 du. GX 10F, at 4-5.
---------------------------------------------------------------------------

    On October 26, Respondent again filled orders for 7,000 du (5,000

[[Page 55455]]

oxycodone 30 + 2,000 oxycodone 15), bringing City View's rolling 30-day 
total to 34,900 du.\107\ GX 10F, at 4-5. A SOMS note of this date 
states: ``ok to ship, size not excessive on a total of 70 OXY this 
order puts them at 28300 for the month, CSL is 28700.'' GX 19, at 117.
---------------------------------------------------------------------------

    \107\ The total includes the Sept. 28 orders for 6,600 du (5,000 
oxycodone 30 and 1,600 oxycodone 15), and the prior October orders. 
GX 10F, at 4-5.
---------------------------------------------------------------------------

    Finally, on October 27, Respondent filled an order for 1,000 du of 
Endocet 10, bringing City View's rolling 30-day total to 35,900 du. GX 
10F, at 4-5. A SOMS note merely states: ``rwr under 30 on csl of oxy.'' 
GX 19, at 117.
    With respect to each of these dates, Respondent filled orders which 
clearly placed City View's orders over the oxycodone CSL on a rolling 
30-day basis. Yet, there is no evidence that Respondent ever obtained 
an explanation for the order, which it then independently verified, and 
a new UR. And it did not report any of the orders as suspicious.
    Similarly, Respondent filled orders totaling 28,700 du for the 
month of November. This included orders for 5,000 du of oxycodone 30 
and 2,000 du of oxycodone 15 on November 2; orders for 6,500 du of 
oxycodone 30 on and 500 Endocet on November 9; 8,000 du of oxycodone 30 
on November 18, and 6,700 du of oxycodone 30 on November 29. GX 10F, at 
4-5. Here again, on each occasion, City View's orders placed its 
oxycodone orders over 28,700 du CSL on a rolling 30-day basis.
    Specifically, City View's filled orders from October 5 through 
November 2 totaled 36,300 du; its filled orders from October 12 through 
November 9 also totaled 36,300; and its filled orders from October 20 
through November 18 totaled 37,000 du. GX 10F, at 4-5. SOMS notes for 
both November 2 and 18 show that Ms. Seiple released the orders; as for 
the reason, Ms. Seiple wrote ``rwr'' for both orders. GX 19, at 117-18.
    As for the November 9 order, the SOMS note states: ``rwr Oxy within 
buying pattern under CSL leaves 14,700 as of 11/09/10 @947am.'' GX 19, 
at 118. As for the November 29 order, the SOMS note states: ``order 
edit to 67 bottles from 70,'' id., thus once again establishing that 
City View's actual orders totaled 29,000 du and again exceeded the CSL.
    Here again, notwithstanding that each of City View's November 
orders placed it over the oxycodone CSL, Respondent failed to obtain an 
explanation for the orders, which it then verified, as well as new URs. 
And again, it did not report any of the orders as suspicious. On 
December 2, Respondent filled an order for 700 du of two Endocet 
products. GX 10F, at 5. According to MFR notes, the same day, an 
employee of Respondent requested that City View provide a new UR; City 
View provided a UR for the month of November. However, the UR was 
incomplete, a fact which Ms. Seiple herself noted in an MFR dated 
December 17. RX 2D, at 1. Indeed, this UR clearly did not list City 
View's total dispensings of all prescription products.\108\ Id. at 14.
---------------------------------------------------------------------------

    \108\ The UR also listed substantially fewer drugs than other 
URs. Compare RX2D, at 14 (listing 272 drugs), with id. at 34 (Mar. 
2010 UR listing 396 drugs although also missing total dispensings); 
id. at 71 (Sept. 2009 UR listing 401 drugs); id. at 100 (Feb. 2008 
UR listing 495 drugs).
---------------------------------------------------------------------------

    Notwithstanding that City View had provided an incomplete UR, and 
that this was the first UR it had obtained since the March 2010 UR, on 
December 6, Respondent filled orders for 8,000 du of oxycodone 30 and 
1,000 du of oxycodone 15.\109\ GX 10F, at 4-5. While there are three 
entries in the SOMS notes for this date, only one lists the name of a 
reviewer (Ms. Seiple) with the following explanation: ``rwr under csl 
and last 30 days not excessive due to allocation of market producet 
[sic].'' GX 19, at 118.
---------------------------------------------------------------------------

    \109\ A SOMS note dated Dec. 4, 2010 states: ``oxy edited off 
order mallinkrodt [sic].'' GX 19, at 118.
---------------------------------------------------------------------------

    A note in the Ship to Memos (made on Jan. 8, 2011) states that City 
View's account was placed on compliance hold on December 9 ``due to 
updated information [being] needed'' and that the account was 
terminated on December 16 ``due to business model of insurance ratio.'' 
GX 19, at 111; see also RX 2D, at 1.
    Additional notes which are dated December 2, but which may have 
been added after the fact,\110\ state that City View's November 2010 UR 
``will be low due to allocation in market.'' RX 2D, at 2. Other notes 
for the entry list figures of 35,530 and 5,400; these figures 
correspond to line entries on the UR for City View's dispensings of 
oxycodone 30 (with the NDC for product manufactured by Mallinckrodt) 
and alprazolam 2 mg. Compare id. with id. at 7 (UR line entries #s 1 & 
5). Additional notes state: ``11/10 25200 Malinkrodt [sic] purchased'' 
and ``1000 KVK.'' Id. at 2. As found above, these numbers correspond to 
Respondent's total shipments of 26,200 du of oxycodone 30 during the 
month of November 2010. Still more notes appear to compare the number 
of oxycodone 15 and alprazolam 2 mg dispensed by City View with the 
quantities Respondent distributed to it, with the notes indicating that 
City View's Xanax CSL was being reduced to 3,800 du or 70 percent of 
the November UR. Id.
---------------------------------------------------------------------------

    \110\ This note is written on a blank sheet following the lined 
MFR page which contains notes dated Dec. 16 and 17, but not Dec. 2. 
See RX 2D, at 1-2.
---------------------------------------------------------------------------

    Thereafter, the notes state ``hold order until review complete'' 
and ``concerns regarding # of doses dispensed as opposed to 
noncontrols'' and then refer to a phone call made to City View's 
pharmacist on December 15. Id. (emphasis added). According to the note, 
during the call Respondent told its pharmacist that its ``order will 
hold.'' Id. Further notes state ``only purchases from Cardinal & 
Masters'' and ``insurance how does he make profit??'' Id.
    A note dated December 16 recounts that City View's file was 
``reviewed in length.'' Id. Therein, Ms. Seiple further wrote that she 
``spoke to customer on phone multiple times regarding ratio of controls 
& noncontrols,'' as well as ``in regards to ratio cash vs. insurance,'' 
and that per Respondent's policy, City View was ``placed in 
noncontrolled status due to customer indicating cash in OXY.'' Id.\111\
---------------------------------------------------------------------------

    \111\ This entry includes an additional statement which suggests 
that Respondent was ``not clear on [City View's] business model.'' 
RX 2D, at 2. However, because of legibility issues, the meaning of 
the rest of the sentence cannot be determined.
---------------------------------------------------------------------------

    On December 17, City View requested a review of its status. GX 19, 
at 111. Respondent requested that City View provide a UR for the month 
of October, which it did. RX 2D, at 1. The UR showed that during 
October 2010, City View had dispensed a total of 310 prescriptions 
totaling 51,725 du of oxycodone 30 and 148 prescriptions totaling 
11,259 du of oxycodone 15. RX 2D, at 16-17. According to the UR, City 
View's total dispensings for the month were 122,626 du.\112\ Id. at 25. 
Thus, City View's dispensings of oxycodone 30 alone amounted to 42 
percent of its total dispensings, and its dispensings of both oxycodone 
30 and 15 amounted to 51 percent of its total dispensings.
---------------------------------------------------------------------------

    \112\ This included three prescriptions for Gavilyte-N Solution, 
which according to the UR totaled 12,000 units. RX 2D, at 17. 
Gavilyte-N Solution is a product which is mixed with water to create 
a solution with a volume of four liters; it is used to clean a 
patient's bowels before undergoing procedures such as a colonoscopy. 
See http://www.drugs.com/pro/gavilyte-n.html. Thus, while Gavilyte-N 
is a prescription product, assigning a quantity of 12,000 du to 
three prescriptions arguably distorts City View's total dispensings 
of all drugs, as well as its dispensing ratio of controlled to non-
controlled drugs. However, the total quantity of dispensings as 
listed on the UR was used in calculating the dispensing percentages 
for oxycodone 30 and oxycodone 15 and 30.
---------------------------------------------------------------------------

    Thereafter, Respondent did not re-instate City View as a controlled 
substance customer. However, there was

[[Page 55456]]

really nothing new in the information Respondent had developed on City 
View.
    In her declaration, Ms. Seiple asserted that because City View's 
PIC had ``provided an explanation of the policies and procedures [it] 
used to prevent diversion,'' the ``Compliance Department believed that 
City View understood its obligations to prevent the diversion of 
controlled substances, and was taking affirmative steps to meet those 
obligations.'' RX 103, at 53. The answers provided by City View's PIC 
reflected only that when confronted with a suspicious prescription, he 
would call the prescriber; more, however, is required under federal 
law. See United States v. Hayes, 595 F.2d 258, 261 (5th Cir. 1979) 
(``Verification by the issuing practitioner on request of the 
pharmacist is evidence that the pharmacist lacks knowledge that the 
prescription was issued outside the scope of professional practice. But 
it is not an insurance policy against a fact finder's concluding that 
the pharmacist had the requisite knowledge despite a purported but 
false verification.''). Significantly, when asked whether he ever 
refused to fill prescriptions, the PIC responded that he did so only if 
a patient would not present his driver's license or if the physician 
had a problem with his/her DEA registration or other disciplinary 
action.
    However, a pharmacist has a duty to fill only those prescriptions 
which are issued for a legitimate medical purpose by a practitioner 
acting within the usual course of professional practice, see 21 CFR 
1306.04(a), which requires that a pharmacist must ``pay[] attention to 
the `number of prescriptions issued, the number of dosage units 
prescribed, the duration and pattern of the alleged treatment,' the 
number of doctors writing prescriptions and whether the drugs 
prescribed have a high rate of abuse.'' Medicine Shoppe-Jonesborough v. 
DEA, 300 Fed. Appx. 409, 412 (6th Cir. 2008). Moreover, during the June 
25, 2008 site visit, Respondent's consultant simply drew a dash in the 
place for answering the question whether the pharmacy could supply a 
copy of any written policies and procedures it ``might have in place to 
prevent drug diversion and doctor shopping,'' thus suggesting that 
there were no written policies, a fact confirmed during the June 2010 
site visit. RX 2D, at 36, 105. Thus, I find that the explanation City 
View provided as to its policies and procedures to prevent diversion 
was clearly inadequate to support the conclusion that the pharmacy 
``understood its obligations to prevent the diversion of controlled 
substances, and was taking affirmative steps to meet those 
obligations.'' RX 103, at 53.
    In her declaration, Ms. Seiple also asserted that City View's PIC 
had explained that the pharmacy's ``business model included marketing 
to `closed door' facilities such as nursing homes, hospice programs, 
and in-patient medical facilities.'' Id. Yet, there is no indication 
that this explanation was provided during the initial due diligence 
survey, RX 2d, at 73-75; and during the June 2008 site visit, the 
consultant had noted only that City View's servicing of each of these 
types of facilities was ``pending.'' Id. at 106. Significantly, nearly 
two years later, City View reported only that it serviced two small 
nursing homes, with 20-30 beds. Id. at 38.
    Ms. Seiple also asserted that the pharmacy was located within two 
blocks of two hospitals. RX 103, at 53. Yet this was not noted by 
either the consultant following the June 2008 site visit or by Mr. 
Chase after the February 2010 inspection. While it was noted in the 
report for a third site visit (June 28, 2010), the names of the 
hospitals were not identified, and in any event, the mere proximity of 
a pharmacy to a hospital does not justify dispensing levels of 
oxycodone 30 which are grossly disproportionate to the dispensings of 
the most commonly prescribed drugs. Indeed, in City View's case, its 
URs consistently showed that highly abused controlled substances 
(including other strengths of oxycodone and alprazolam) were 
predominant among the pharmacy's dispensings.
    Ms. Seiple stated that City View had informed Respondent ``that it 
filled prescriptions for patients from several pain clinics, and 
identified the physicians who wrote the prescriptions for those 
patients.'' RX 103, at 53-54. While it is undoubtedly true that this 
``accounted for the volume of pain medications being dispensed, and the 
percentage of oxycodone dispensed relative to other drugs,'' id. at 54, 
this does not establish that the oxycodone was being dispensed by City 
View pursuant to prescriptions that were issued by the identified 
physicians for a legitimate medical purpose. See 21 CFR 306.04(a). Nor 
is there any evidence that Respondent verified the licensure status of 
the identified physicians and whether they had any specialized training 
or board certification in pain management.
    Next, Ms. Seiple asserted that after City View's account was 
approved, the SOMS ``identified and held any order for controlled 
substances . . . that deviated from its typical volume, pattern or 
frequency'' and that ``[a]ll such orders were released only after 
review by [the] Compliance Department.'' RX 103, at 54. As found 
previously, the SOMS did not become operational until August 2009. 
Moreover, as found above, numerous orders were released even though 
Respondent's personnel failed to comply with its purported policy which 
required that it contact the pharmacy and obtain an explanation for the 
order, which it then independently verified, as well as that it obtain 
a new UR. Indeed, Respondent rarely obtained new URs, as Ms. Seiple's 
declaration makes clear. Id.
    Ms. Seiple further acknowledged that Respondent ``was aware of the 
volume of oxycodone and other controlled drugs being dispensed by City 
View, and the percentage of controlled drugs dispensed relative to 
other drugs.'' Id. Unexplained by Ms. Seiple is why she did not find it 
suspicious that City View's actual dispensings of controlled substances 
(including its schedule II dispensings) constituted a much greater 
percentage of its total dispensing than the dispensing ratio identified 
in the August 2009 Compliance Review. Compare RX 2D, at 62-63, 71 
(Sept. 2009 UR showing that oxycodone 30 dispensings alone comprised 41 
percent of total dispensings) with RX 13, at 1 (suggested questions 
document with notation that typical pharmacy's dispensing ratio of 
controlled to non-controlled drug as 20 to 80 percent); GX 51B, at 4 ] 
12 (testimony of Wayne Corona that DEA ``advised us to focus on whether 
a customer . . . dispensed a high percentage of controlled substances 
as compare[d] to non-controlled substances'').
    Indeed, discussing the February 2010 site visit, Ms. Seiple simply 
noted that ``Mr. Chase did not note any suspicious activity during his 
inspection, and determined that the site inspection was acceptable.'' 
RX 103, at 55. Yet Mr. Chase recommended that a new UR be obtained and 
compared to the site visit. RX 2D, at 40. Ms. Seiple entirely failed to 
address why Mr. Chase's recommendation was not followed until more than 
two months later. See RX 103, at 55. Moreover, as found above, while 
City View's pharmacist had told Mr. Chase that schedule II drugs were 
15 percent of all dispensings, the March 2010 UR showed that City 
View's dispensings of oxycodone 30 had nearly doubled from the level of 
the previous UR (totaling nearly 94,000 du on the new UR), and its 
dispensings of this drug alone comprised 52.5 percent of its total 
dispensings. So too, the UR showed a doubling in City View's 
dispensings of alprazolam 2 mg, another

[[Page 55457]]

controlled substance highly sought after by drug abusers.
    As for why Respondent continued to fill City View's orders and 
failed to report them as suspicious even when they were held by the 
SOMS, Ms. Seiple offered several inadequate explanations. These 
included that Respondent ``specifically investigated the reasons why 
City View's ordering and dispensing patterns were as indicated on the 
URs,'' that ``it appeared to be a full-line pharmacy that was 
dispensing a large variety of both controlled and non-controlled drugs, 
and appeared to be servicing patients of nearby hospitals, closed-door 
facilities, and pain management physicians,'' RX 103, at 54, and that 
``based on [Respondent's] extensive investigation, it determined that 
the orders it shipped to City View were not suspicious.'' Id. at 55.
    I find, however, that the reality is far different, as Respondent 
simply accepted at face value whatever superficial explanation it 
believed would support its continued selling of controlled substances 
while ignoring numerous red flags as to the legitimacy of the 
pharmacy's dispensing of controlled substances. And with respect to 
those orders which were held by the SOMS, Respondent typically did not 
investigate the orders as it routinely failed to contact City View to 
obtain a reason for the order, which it independently verified.
    Remarkably, Ms. Seiple explained that City View's account was 
terminated because Respondent ``developed concerns following its review 
of URs [it] obtained from City View,'' and that ``[d]uring a discussion 
of City View's dispensing patterns and volume [she] had with [its PIC] 
on or about December 6, 2010, [she] became concerned because of 
discrepancies in the information he provided to [her] and the 
dispensing history set forth on the UR.'' Id. at 55-56. As found above, 
notes in Respondent's records show that there were concerns as to the 
number ``of doses dispensed as opposed to noncontrols,'' and the 
``ratio of controls & noncontrols.'' RX 2D, at 2. Yet these issues had 
been present for the entire period in which Respondent distributed 
controlled substances to City View, and Ms. Seiple offered no credible 
explanation for why it took Respondent so long to terminate the 
account.\113\
---------------------------------------------------------------------------

    \113\ While Respondent's records note that there were concerns 
over the ratio of cash to insurance and the ``business model of 
insurance ratio,'' in her testimony, Ms. Seiple did not cite these 
as reasons for the termination of the account.
---------------------------------------------------------------------------

Medical Plaza Pharmacy

    Medical Plaza Pharmacy was a community pharmacy located in 
Plantation, Florida. RX 2F, at 137. According to Respondent's due 
diligence file, Medical Plaza became a customer of Respondent in 
November 2008. Id. at 131. However, documents in the due diligence file 
indicate that the pharmacy was sold the next month and a printout 
verifying the pharmacy's license states that the new owner's license 
was issued on December 30, 2008. Id. at 131, 137.\114\ Respondent also 
verified the license of its PIC; the verification showed that he had 
not been subject to discipline. Id. at 138.
---------------------------------------------------------------------------

    \114\ The due diligence file also includes documents 
establishing that the owners of Medical Plaza also owned Hillmoor 
Plaza Pharmacy, Inc., which did business under the name of IV Plus, 
and was located in Wellington, Florida. RX 2F, at 139-40. However, 
the Government's evidence focused entirely on Respondent's 
distributions to the pharmacy located in Plantation. See GX 10F, at 
41-42.
---------------------------------------------------------------------------

    On March 24, 2009, Respondent conducted an initial due diligence 
survey for purchasing controlled substances, speaking to the pharmacy's 
PIC. Id. at 131. According to the survey, the PIC reported that Medical 
Plaza's daily prescription average was 120 and that it filled schedule 
II prescriptions. Id. He further reported that 35 to 40 percent of the 
prescriptions were for schedule II drugs. Id. However, with respect to 
the percentage of its dispensings comprised by all controlled 
substances, the PIC stated that he was ``unsure'' and ``didn't want to 
give [the] wrong answer.'' Id.
    The PIC also reported that Amerisource was Medical Plaza's primary 
wholesaler, that he did not fill prescriptions that had been issued 
``via the Internet,'' that the pharmacy accepted insurance, and that 70 
to 80 percent of the prescriptions were paid for by insurance. Id. With 
respect to its policies and procedures, the PIC stated that he had 
refused to fill prescriptions if he did not have the ``item in stock'' 
or if he felt that the prescription was ``not valid.'' Id. at 132. He 
also reported that he did not fill controlled substance prescriptions 
written by out-of-area or out-of-state doctors. Id. As for whether he 
filled controlled substance prescriptions for out-of-area or out-of-
state patients, the PIC reported that he ``normally'' did not for 
``CS,'' but did if the patient was ``visiting'' and ``g[o]t hurt or 
something.'' Id. At the bottom of the form, Respondent's employee noted 
that the PIC had ``answered questions ok.'' Id.
    On the same day, Respondent also conducted the same survey of the 
Hillmoor Plaza, d/b/a IV Plus pharmacy. See id. at 133-34. On the 
checklist for the due diligence review on Hillmoor Plaza, Ms. Seiple 
wrote: ``N/C too new 6 month review.'' Id. at 130. Notably, no such 
note appears on the checklist for Medical Plaza Pharmacy, and while the 
words ``site visit'' are written on the top of this document, id. at 
129, the evidence shows that Respondent did not perform a site visit 
until June 18, 2009. Id. at 56. Moreover, Respondent did not obtain a 
UR from the pharmacy until August 11, 2009, nearly five months after it 
had approved Medical Plaza to purchase controlled substances.
    In April 2009, Respondent filled three orders placed by Medical 
Plaza totaling 5,000 du of oxycodone 30; on May 1, it filled an order 
for 4,800 du of oxycodone 30; and on June 2, it filled an order for 
5,000 du of oxycodone 30. GX 10F, at 42. Respondent thus shipped to 
Medical Plaza 14,800 du of the drug before it even conducted a site 
visit, which took place on June 18. RX 2F, at 56.
    During the site visit, Respondent's inspector noted that Medical 
Plaza was located in a medical center next to a hospital and appeared 
to be very busy. Id. at 61. He also noted that the pharmacy was not a 
specialty pharmacy, did not engage in mail order business, that it sold 
front store items and appeared to be a full service pharmacy, that it 
was not affiliated with any Web sites, and did not fill prescriptions 
for physicians who were primarily engaged in pain management. Id. at 
58-60. He also documented that the pharmacy had used at least two other 
distributors.\115\ Id. at 59.
---------------------------------------------------------------------------

    \115\ The form actually lists a fourth distributor; however, the 
name of the distributor is in a different color and different 
handwriting than the majority of the notations on the form. RX 2F, 
at 59.
---------------------------------------------------------------------------

    Respondent's inspector then noted that the pharmacy filled 100-120 
prescriptions per day, that controlled substances comprised 60 percent 
of the prescriptions, and that schedule II drugs comprised 20 percent 
of the prescriptions. Id. According to the inspector, 25 percent of the 
prescriptions were paid for with cash. Id. at 60. The inspector further 
noted that Medical Plaza ``want[ed] an increase in Oxy's--Maybe to Next 
Tier?'' and that this was ``ok by me!'' \116\ Id. at 58. In his 
concluding comments, the inspector further wrote: ``Masters needs to 
meet this pharmacy's needs.'' Id. at 61.\117\
---------------------------------------------------------------------------

    \116\ Next to this is the following notation: ``will be reviewed 
by committee JS. 8-21-09.'' RX 2F, at 58.
    \117\ In addition, Respondent's inspector obtained a copy of a 
December 23, 2008 Florida DOH Inspection Report. RX 2F, at 62. The 
report noted that it was for ``an OPENING INSPECTION'' and that 
``many responses [were] NOT APPLICABLE.'' Id.

---------------------------------------------------------------------------

[[Page 55458]]

    On July 15, 2009, Respondent filled an order by Medical Plaza for 
5,000 du of oxycodone 30, and on August 6, it filled an order for 
10,000 du of oxycodone 30. GX 10F, at 42.
    The due diligence file includes a ``Schedule Drug Limit Increase 
Request Form.'' RX 2F, at 110. The form, which is dated August 11, 
appears to have been submitted by Respondent's account manager for the 
pharmacy. Id. A handwritten notation states: ``order on hold'' and 
``please see if we can release it--Thanks!'' Id. Further notations, 
which were apparently also made by the account manager, state: ``Please 
Review customer, In a medical building of 60 doctors, and next to a 
hospital. Dispenses many controls. Thanks,'' followed by the initials 
of the account manager. Id. The form also includes two additional notes 
which were handwritten diagonally across the page and initialed by Ms. 
Seiple. The first states: ``We Donot [sic] Do limit increases''; the 
second states: Please have UR sent in for review by committee.'' Id.
    The same day, Respondent finally obtained a UR from Medical Plaza. 
The UR covered the month of July and showed that the pharmacy had 
dispensed a total of 201,444.74 du for all prescription products. RX 
2F, at 127.
    The UR further showed that Medical Plaza had dispensed 369 
prescriptions totaling 61,130 du of oxycodone 30 mg and 229 
prescriptions totaling 27,122 du of oxycodone 15 mg.\118\ Id. at 111-
12. Thus, Medical Plaza's dispensings of oxycodone 30 mg alone amounted 
to more than 30 percent of its total dispensings, and its dispensings 
of both dosage strengths (which totaled 88,252 du) amounted to nearly 
44 percent of its total dispensings. Moreover, Medical Plaza's 
dispensings of all oxycodone products including OxyContin and 
combination drugs such as Endocet 10/325 and 10/650 totaled 112,401 du, 
56 percent of its total dispensings.\119\ Yet, during the June 
inspection, the pharmacy's PIC had represented that schedule II drugs 
comprised only 20 percent of its prescriptions.
---------------------------------------------------------------------------

    \118\ For each NDC, the report also calculated the average 
quantity dispensed per prescription. Specifically, the first line 
entry for oxycodone 30 (34,784 du) showed an average of 157 du per 
prescription; the second entry for oxycodone 30 (25,356 du) showed 
an average of 178.5 du per prescription; and the third entry (810 
du) showed an average of 162 du per prescription. RX 2F, at 111, 
114.
    \119\ The UR also showed that Medical Plaza had dispensed 75 
prescriptions totaling 9,654 du of Endocet 10/325; 59 prescriptions 
totaling 5,047 du of OxyContin (and oxycodone er) 80 mg; 35 
prescriptions totaling 2,487 du of OxyContin (and oxycodone er) 40 
mg; 23 prescriptions totaling 2,120 du of oxycodone (and Roxicet) 5/
325; 21 prescriptions totaling 1,700 du of oxycodone/apap 5/325; 14 
prescriptions totaling 1,656 du of Endocet 10/650; 10 prescriptions 
totaling 1,140 du of oxycodone 5 mg; 7 prescriptions totaling 840 du 
of OxyContin (and oxycodone er) 10 mg; 10 prescriptions totaling 720 
du of OxyContin (oxycodone er) 20 mg; 4 prescriptions totaling 295 
du of Endocet 7.5/325; and 3 prescriptions totaling 190 du of 
Endocet 7.5/500. RX 2F, at 111-22.
---------------------------------------------------------------------------

    Moreover, while the UR ranked the drugs by the number of 
prescriptions (per NDC) as opposed to the quantity of dosage units 
dispensed, with the exception of carisoprodol, controlled substances 
were predominant by either measure. Id. The UR also contained financial 
information for each drug including the adjudicated amount, the 
acquisition cost, the profit in dollars, and profit percentage. See RX 
2F, at 111-17. However, the data for the most dispensed controlled 
substances were blacked out.\120\ See id.
---------------------------------------------------------------------------

    \120\ Given that the financial data for particular drugs on URs 
from other pharmacies were not blacked out, the fair inference is 
that Medical Plaza blacked out the data.
---------------------------------------------------------------------------

    The next day (Aug. 12, 2009), Respondent filled Medical Plaza's 
orders for 5,000 du of oxycodone 15 and 3,600 du of Endocet 10/325. GX 
10F, at 42. A SOMS note of the same date states: ``order does not 
exceed current size limit, ok to ship.'' GX 22, at 143. Moreover, the 
MFR notes establish that the compliance committee did not conduct its 
review of the site visit and UR until August 21. RX 2F, at 1. Yet the 
two orders were shipped nine days earlier.\121\
---------------------------------------------------------------------------

    \121\ Another SOMS note dated August 7 made by Ms. Seiple 
states: ``Or [sic] to ship please see UR and site visit.'' GX 22, at 
143. Even if this entry does not correspond to one of the oxycodone 
orders that were filled the previous day, it should be noted that 
Respondent had yet to obtain a UR from Medical Plaza.
---------------------------------------------------------------------------

    Respondent did not ship any oxycodone to Medical Plaza during 
September 2009, and in October, it filled a single order for 10,000 du 
of oxycodone 30 and two orders totaling 1,000 du of OxyContin 80. GX 
10F, at 41-42. An MFR note dated November 11 states that ``UR was 
received on 8/11 for month of July'' and ``Need survey updated--
completed 11/18.'' RX 2F, at 1.
    On November 17, Respondent filled Medical Plaza's orders for 1,200 
OxyContin 80, 1,200 of Endocet 10/325 and 200 du of Endocet 5/325. GX 
10F, at 41-42. An MFR note dated November 17 states: ``order flagged 
for oxy 15 + 30 order is for 100, CSOS limit is 5000 already order 1400 
on 11-17-09'' and ``[c]alled to let customer know order was not 
shipping today[.] The ph[arma]cy] was closed.'' RX 2F, at 1.
    Medical Plaza's orders for 7,000 du of oxycodone 30 and 3,000 du of 
oxycodone 15 placed its total oxycodone orders at 23,600 du on a 
rolling 30-day basis; however, its highest monthly total during the 
previous six months was 18,600 du during August. GX 10F, at 41-42. 
Thus, the November 17 orders for oxycodone placed Medical Plaza's 
oxycodone orders at 5,000 du more than its CSL.
    On November 18, a member of the compliance department contacted 
Medical Plaza and conducted a second due diligence survey. Id. at 68. 
According to the form, Respondent's representative asked its owner: 
``what is the pharmacy's primary customer base?'' Id. Respondent's 
representative checked the box for ``community,'' leaving blank such 
boxes as ``Geriatric,'' ``Worker Comp,'' and ``Pain Management.'' Id. 
Respondent's representative also documented that the pharmacy did not 
do any ``Institutional' or ``Closed Door Business.'' Id. According to 
the form, Medical Plaza reported that McKesson was its primary 
wholesaler and that it also purchased from Anda. Id. It also reported 
that its daily prescription average was 120, that it filled ``C2s,'' 
and that its ``daily ratio of controls to non controls'' was ``40/60.'' 
Id. It further reported that it accepted insurance as well as Medicare 
and Medicaid and that ``70-80%'' of the prescriptions were paid for 
``by insurance.'' Id.
    As for its policies and procedures, Medical Plaza again reported 
that it filled prescriptions for out-of-state or out-of-area patients 
visiting the area but that it did not fill prescriptions written by 
out-of-state or out-of-area physicians. Id. at 69. It also denied 
soliciting practitioners and retirement communities for business. Id.
    To prevent doctor shopping, Medical Plaza stated that it 
``check[ed] profile'' and ``verif[ied] w/doctor.'' Id. And to ensure 
that doctors were exercising proper standards of care, Medical Plaza 
reported that it ``call[ed] to verify doctor information.'' Id. Medical 
Plaza also advised that it had a refused to fill a prescription because 
the prescription was not valid. Id. However, when asked whether it had 
``ever decided to permanently stop filling scripts for a certain 
physician,'' it answered ``No.'' Id.
    Notwithstanding that it conducted the due diligence survey, there 
is no evidence that Respondent's employee obtained an explanation for 
the November 17 orders or a new UR as required by its Policy 6.2 Yet 
the same

[[Page 55459]]

day (Nov. 18), Respondent filled the aforesaid orders which were for 
7,000 du of oxycodone 30 and 3,000 du of oxycodone 15. GX 10F, at 41-
42. According to notes in both the SOMS and MFRs, the orders were 
``shipped [with] reservation'' and an ``updated UR was requested.'' RX 
2F, at 1; GX 22, at 143.
    On December 14, Medical Plaza placed an order for 15,000 du of 
oxycodone 30. RX 2F, at 2. On a rolling 30-day basis, Medical Plaza's 
oxycodone orders totaled 27,600 du, 9,000 du over the CSL of 18,600 
(with August being the highest monthly total). Respondent contacted 
Medical Plaza to obtain a new UR, and the next day, Medical Plaza 
provided a UR for the month of November 2009. Id.; see also id. at 72-
90. While Respondent did not fill the order, apparently because Medical 
Plaza was not ordering enough non-controlled products, there is no 
evidence that Respondent obtained an explanation for the order. RX 2F, 
at 2. (MFR note stating: ``Per Diane Customer need [sic] to order 3800 
in non control [sic] products as of 12.15'').\122\ Nonetheless, 
Respondent failed to report the order as suspicious even though it had 
been placed on hold because of its unusual size.
---------------------------------------------------------------------------

    \122\ The evidence shows that this policy was not motivated by 
the concern that a customer that ordered only controlled substances 
was likely diverting drugs, but rather, out of the sales 
department's interest in using the availability of controlled 
substances to increase sales of other products. See GX 25, at 19 
(email (Feb. 25, 2010) from Diane Garvey, Senior Vice President to 
Sales Department: ``DO NOT EVER ENTER A C2 ORDER UNLESS THE SYSTEM 
IS SHOWING 10% . . . . also the second you receive an csos 
[controlled substances ordering system] email and you see your 
customer has not reached the 10% that order will be put on hold for 
one day ONLY to try to secure the 10% then it will be deleted.''); 
id. (email (Feb. 25, 2010) from Jennifer Seiple to Compliance 
Department: ``Compliance does not hold orders for ratio. Ratio is 
controlled by sales. It is not factored in when the order is 
reviewed.''). See also id. at 5 (email Dec. 1, 2010 from Diane 
Garvey to Sales Department: ``When you get a csos order and your 
customers are NOT at 10% the order will hold no need to email us 
simply call the customer and get them to 10%. You should be calling 
them anyway and thanking them for the order and selling the daily 
specials, syringes, etc.''); Tr. 1276 (testimony of former 
compliance department employee regarding Ms. Garvey's Dec. 1, 2010 
email that it was ``correct'' that Respondent ``did not want its 
customers to . . . purchase nothing but controlleds. It wanted to 
maximize its revenue by selling other products, specifically 
noncontrolleds, to the same customers, correct?'').
---------------------------------------------------------------------------

    As for the November 2009 UR, it showed that Medical Plaza had 
dispensed 479 prescriptions totaling 92,404 du of oxycodone 30 mg \123\ 
(an average of 193 du per Rx) and 348 prescriptions totaling for 44,051 
du of oxycodone 15 (an average of 127 du per Rx); \124\ it also showed 
that Medical Plaza's total dispensings of prescription products were 
246,255 du. RX 2F, at 72, 74, 83, 90. Thus, since the previous UR, 
Medical Plaza's dispensings of oxycodone 30 had increased by 31,274 du, 
an increase of 51 percent, and its dispensings of oxycodone 15 had 
increased by 16,929 du, an increase of 62.4 percent.\125\
---------------------------------------------------------------------------

    \123\ Of further note, the first page of the UR contains the 
following handwritten notations: ``91,804 oxy 30's'' and ``43,991 
Oxy 15's.'' RX 2F, at 72. These figures are the sum of the 
quantities listed in the entries on the first page of the UR for 
oxycodone 30 and oxycodone 15. However, the UR also includes an 
entry for 600 tablets of Roxicodone 30 mg (the same drug as 
oxycodone 30), see id. at 74, and an entry for 60 tablets of 
oxycodone 15 under a different NDC. See id. at 83.
    \124\ The UR also showed that Medical Plaza had dispensed a 
total of 20,095 du of other oxycodone products including OxyContin 
(and oxycodone extended release) and oxycodone combination drugs. 
See RX 2F. These included 6,740 du of Endocet and generic oxycodone 
10/325; 4,469 du of OxyContin 80; 2,700 du of Percocet and generic 
oxycodone 5/325; 1,812 du of OxyContin 40; 1,158 du of Endocet 10/
650; 984 du of OxyContin 10; 780 du of OxyContin 20; 420 du of 
Endocet and generic oxycodone 7.5/325; 364 oxycodone 5; 360 
OxyContin 60; 150 du of OxyContin 30; and 150 du of Endocet 7.5/500. 
See id.
    \125\ The UR also showed the quantity per prescription for each 
drug by NDC code--thus Respondent's employees who reviewed the UR 
did not even have to calculate this figure; the UR showed that for 
oxycodone 30 with NDC 00406-8530-01, the average quantity was 
195.59, and for NDC code 52152-0215-02, the average quantity was 
186.91. RX 2F, at 72.
---------------------------------------------------------------------------

    Moreover, Medical Plaza's dispensings of oxycodone 30 comprised 
37.5 percent of its total dispensings, and its dispensings of oxycodone 
15 comprised 17.9 percent. Thus, these two dosages alone accounted for 
55.4 percent of its total dispensings, and its dispensings of all 
oxycodone products comprised nearly 64 percent of its dispensings. Yet 
during the previous due diligence survey, Medical Plaza had represented 
that all controlled substances constituted 40 percent of its 
dispensings. And once again, the financial data pertaining to the most 
dispensed controlled substances were blacked out. Id.
    Respondent did not ship any more oxycodone to Medical Plaza until 
February 24, 2010, when it filled orders for 3,600 du of oxycodone 30 
and 6,000 du of oxycodone 15. GX 10F, at 41-42.
    In March 2010, Respondent filled orders for Medical Plaza for 
49,000 du of oxycodone 30 and 31,500 du of oxycodone 15, for a total of 
80,500 du. GX 10F, at 41-42. Notably, during the preceding six months, 
Medical Plaza's highest monthly total purchase of oxycodone was 12,600 
du during the month of November. Id. As found above, according to 
Respondent, the SOMS reset the CSL ``for each control [sic] group . . . 
on the first of every month'' based on ``[t]he highest monthly total 
from the preceding six months.'' RX 78, at 60. Thus, the CSL should 
have been set at 12,600 du.
    On March 11, Respondent filled Medical Plaza's orders for 4,000 du 
of oxycodone 30 and 4,000 du of oxycodone 15. GX 10F, at 41-42. With 
these orders, Medical Plaza's rolling 30-day total of oxycodone was 
17,600 du, 5,000 du more than its CSL. According to a SOMS note, the 
order was ``ok to ship'' because its ``size was not excessive.'' GX 22, 
at 144. Here again, there is no evidence that Respondent obtained an 
explanation for the order and a new UR.
    On March 16, Respondent filled Medical Plaza's orders for 10,000 
more du of oxycodone 30, raising its total orders on a rolling 30-day 
basis to 27,600 du, a level more than double the CSL. GX 10F, at 41. 
The corresponding SOMS notes states: ``oxy 30 supported bu [sic] UR 
increase due to getting things squared away with AR.'' GX 22, at 144. 
An MFR note which is dated either March 11 or 16 states: ``Oxy orders 
have varied due to understanding ratio & problems with AR.'' RX 2F, at 
2. While Respondent provided no further explanation as to the meaning 
of ``problems with AR,'' this order also placed Medical Plaza over its 
CSL, and even assuming that this explanation was provided by the 
pharmacy, Respondent did not obtain a new UR.
    On March 18, Respondent filled an order for 7,500 du of oxycodone 
30. GX 10F, at 41. With this order, Respondent had filled orders for 
25,500 du just in March, as well as 9,600 du on February 24, for a 
total of 35,100 du on a rolling 30-day basis, placing Medical Plaza's 
filled orders at nearly three times the CSL.
    The corresponding SOMS note states: ``ok to ship over 1,763 over UR 
for Oxy 30.'' GX 22, at 144. Once again, there is no evidence that 
Respondent contacted the pharmacy to obtain an explanation for the 
order as well as a UR. Of further note, while on numerous occasions 
Respondent filled orders notwithstanding that the orders exceeded the 
CSL, it typically justified doing so (even if improperly) because the 
order was under the dispensing levels showed by the UR. In short, the 
justification documented in the SOMS makes no sense.
    On March 19, Respondent filled Medical Plaza's orders for 7,500 du 
of oxycodone 30 and 7,500 du of oxycodone 15, thus placing its total 
orders on a rolling 30-day basis at 50,100, a level more than four 
times the CSL. GX 10F, at 41-42. A note in the MFR states: ``RWR 
[Release with

[[Page 55460]]

Reservation]--order supported by UR fluctuation in buying pattern due 
to credit & sales,'' RX 2F, at 2; and a SOMS note states: ``ok to ship 
UR supports Oxy order.'' GX 22, at 144.
    Regarding the MFR's reference to the fluctuation in Medical Plaza's 
buying pattern because of credit and sales, the record does contain a 
February 8, 2010 email from Dennis Smith, Respondent's CEO, to various 
employees including Ms. Seiple and Mr. Corona which states: ``Sales on 
these Oxycodone and and [sic] SOMS activity should grow significantly 
due to reduced prices on these products to the retail trade. Look for 
KVK Oxycodone sales to increase dramatically.'' RX 20. However, while 
it would be reasonable for a pharmacy to increase its purchases of a 
product to take advantage of a discount being offered by a manufacturer 
or distributor, there is no evidence that any of Respondent's employees 
who reviewed Medical Plaza's orders contacted the pharmacy and were 
provided this explanation by it for any order until late April.
    On March 24, Respondent filled Medical Plaza's orders for 10,000 du 
of oxycodone 30 and 10,000 du of oxycodone 15, thus placing its total 
orders during the rolling 30-day period at 70,100 du, a level nearly 
six times the CSL. GX 10F, at 41-42. A SOMS note states that the order 
was ``ok to ship-oxycodone increase ur supported-frequency not 
excessive.'' GX 22, at 144. Again, there is no evidence that Respondent 
contacted Medical Plaza to obtain an explanation for the increase in 
its orders, or that it obtained a new UR even though the UR on file was 
then four months old.
    On March 25, Respondent filled two more orders from Medical Plaza 
for 10,000 du each of oxycodone 30 and 15, thus placing its total 
orders during the rolling 30-day period at 90,100 du, a level more than 
seven times its CSL. GX 10F, at 41-42. A SOMS note by Ms. Seiple 
states: ``rwr [release with reservation] per committee supported by ur 
on file please do not exceed quantity on ur for roxy 30 and 15.'' GX 
22, at 144. An MFR note by Ms. Seiple further states: ``Ship to UR per 
committee order released for 20k (10k Oxy 30 10k OX 15) only ship to UR 
on file Do not ship over UR.'' RX 2F, at 2. Here again, there is no 
evidence that Respondent contacted Medical Plaza and obtained an 
explanation for the order and a new UR.
    Medical Plaza's March orders marked a more than four-fold increase 
in its oxycodone purchases over its previous highest month's purchases 
(18,600 du in August), and a nearly six-fold increase over its highest 
month's purchases during the previous six months. Yet Respondent failed 
to report any of the March orders as suspicious.
    On April 1, Respondent filled Medical Plaza's order for 10,000 du 
of oxycodone 30, bringing its total orders on a rolling 30-day basis to 
90,500. GX 10F, at 41. Yet a SOMS note on the order states: ``ok to 
ship-morphine and oxycodone within csl for period.'' GX 22, at 144. 
However, even assuming that Medical Plaza's oxycodone CSL was 
automatically increased to 80,500 du based on the March 2010 orders, 
the April 1 order still placed it 10,000 du over the CSL. Here again, 
there is no evidence that Respondent contacted Medical Plaza and 
obtained an explanation for the order and a new UR. Nor did it report 
the order as suspicious.
    Thereafter, on April 8, Respondent filled Medical Plaza's orders 
for 3,700 du of oxycodone 30 and 10,000 du of oxycodone 15, bringing 
its total orders on a rolling 30-day basis to 104,200 du and nearly 
24,000 du over its CSL . GX 10F, at 41-42. Incredibly, a SOMS note for 
the transactions states: ``ok to ship, size & [f]requency not excessive 
on OXY CSL is 15k, this order is for (100) OXY 15mg & (37) OXY 30mg 
already purchased 10k this month.'' GX 22, at 144. Here again, there is 
no evidence that Respondent contacted Medical Plaza and obtained an 
explanation for the orders and a new UR. Nor did it report the orders 
as suspicious.
    On April 15, Respondent filled Medical Plaza's orders for 42,000 du 
of oxycodone 30 and 10,000 du of oxycodone 15, thus bring its total 
orders on a rolling 30-day basis to 138,200 du, nearly 58,000 du over 
its CSL. GX 10F, at 41-42. Two SOMS notes of the same date state: ``ok 
to ship oxy ur supports order'' and ``ok to ship Oxy 15 & 30 ur supprts 
[sic].'' GX 22, at 144. A note in the Ship to Memos states: ``Oxy 30mg-
91,804'' and Oxy 15mg-43,991.'' Id. at 141. These numbers correspond to 
the numbers in the handwritten notation on the first page of the 
November 2009 UR. See RX 2F, at 72; see also supra n. 125. And a second 
note in the Ship to Memos, which was added later that day, states: 
``released 10k of Oxy 15mg leaves 23,991 . . . 30k of the Oxy 30mg 
leaves 14,804 for the month of April.'' GX 22, at 141. Once again, 
there is no evidence that Respondent contacted Medical Plaza and 
obtained an explanation for the order and a new UR. Nor did it report 
the orders as suspicious.
    The evidence also shows that on or about April 23, Medical Plaza 
placed additional orders for 30,000 du of oxycodone 30 and 15,000 du of 
oxycodone 15. RX 2F, at 2. On a rolling 30-day basis, these orders 
placed the Medical Plaza's oxycodone orders at 140,700 du, a level more 
than 60,000 du above the March shipments.\126\
---------------------------------------------------------------------------

    \126\ This total includes the Mar. 25 orders for 10,000 du of 
oxycodone 30 and 10,000 du of oxycodone 15; the April 1 order for 
10,000 du of oxycodone 30; the April 8 orders for 3,700 du of 
oxycodone 30 and 10,000 du of oxycodone 15; and the April 15 orders 
for 42,000 du of oxycodone 30 and 10,000 du of oxycodone 15. GX 10F, 
at 41-42.
---------------------------------------------------------------------------

    Regarding the April 23 orders, an MFR note states: ``order pending 
15k oxy 15 oxy 30, 30 K.'' Id. The note then states that the account 
was ``currently @55k on OX 30 mg for month & 20k on Oxy 15 mg'' and 
that the order was ``not supported [by] the UR.'' Id. The note then 
states: ``get updated UR from March for Review'' and ``let them know 
order will not ship & will be reviewed in [illegible] days.'' Id. A 
further note in the Ship to Memos states: ``In April shipped 75700 Oxy. 
The account was reviewed to not ship over this amount[.] An order was 
deleted for 450 bottles above the 75700 already shipped.'' GX 22, at 
141.
    Other MFR notes show that Respondent contacted the pharmacy and was 
told that the order was because of ``price'' and that the pharmacy was 
``stocking up.'' RX 2F, at 3. The pharmacist also said he would accept 
a lower quantity and that ``business [wa]s still about the same.'' Id. 
According to the note, Respondent's employee told the pharmacist that 
the last UR was from November,\127\ to which the pharmacist replied 
that ``nothing changed.'' Id. Respondent's employee told the pharmacist 
that the order would be reviewed, and in a later phone call, told the 
pharmacist that the order would not be shipped that day. Id. According 
to the MFR, the pharmacist said ``ok it was for over stock anyway.'' 
Id.
---------------------------------------------------------------------------

    \127\ According to another note, Respondent's employee had 
called the pharmacy earlier, spoken to a floater, and asked for a 
new UR. RX 2F, at 3.
---------------------------------------------------------------------------

    An MFR note of April 26 indicates that Ms. Seiple called Medical 
Plaza and talked with its pharmacist. Id. The additional note states: 
``McKesson is wholesaler--Advertise promoting sending out flyers.'' Id. 
A further note states that the account was reviewed with Wayne Corona 
and that the pharmacy's oxycodone limit was currently at 75k. Id. The 
notes also indicate that Respondent had already shipped 75,700 du in 
April and that the decision was made to keep the limit at 75k and to 
not ship ``over 75K.'' Id. Further notes establish that Medical Plaza's 
pending order for 450 bottles of oxycodone (45,000 du) was then deleted 
and that Respondent contacted the pharmacist and ``explained not able 
to ship more than the 75,700 Oxy already shipped.'' Id.

[[Page 55461]]

    Notably, the April 23 orders were not reported as suspicious, even 
though Medical Plaza's employees gave inconsistent explanations for the 
order, with one saying the order was placed because of price, that it 
``was for overstock anyway,'' and that the ``business [wa]s still about 
the same,'' and the other indicating that the order was needed because 
Medical Plaza was promoting its business. This was so even though the 
orders placed Medical Plaza's oxycodone orders at more than 60,000 du 
over its CSL.
    Moreover, while the orders had initially prompted Respondent to 
request a new UR, Medical Plaza did not provide one. Indeed, Respondent 
did not obtain another UR until August 19, 2010, even though it 
continued to ship oxycodone to Medical Plaza. Id. at 12; GX 10F, at 42.
    On May 3, 2010, Medical Plaza placed orders for 30,000 oxycodone 30 
mg and 20,000 oxycodone 15 mg. GX 22, at 145. On a rolling 30-day 
basis, Medical Plaza's orders thus totaled 115,700 du, 40,000 du above 
the CSL of 75,700 (calculated based on the orders filled in April). GX 
10F, at 41-42. A note in the MFR states: ``Called @1.46 p.m. spoke w/
Dana Call back @ 2:30 TT--Jeff.'' RX 2F, at 3. Not only is it unclear 
whether Respondent's employee called back the pharmacy and spoke with 
Jeff, but even if he/she did, there is no evidence as to what 
explanation was provided for the order. However, what is clear is that 
a new UR was not obtained. Moreover, while the evidence shows that 
Respondent edited the orders to 10,000 du for each dosage strength, it 
did not report the orders as suspicious. GX 10F, at 42; GX 22, at 145 
(SOMS note: ``ok to ship qty was reduced from 200 OXY 15mg to 100 & 300 
OXY 30mg to 100'').
    Respondent did not fill another oxycodone order for Medical Plaza 
until June 28, 2010, when it shipped 14,000 du of oxycodone 30 mg to 
it.\128\ GX 10F, at 42. An MFR note for the transaction states that 
``Order for 200 bottles of Oxy has been reduced to 140 bottles @CSL for 
June 14K. Called + spoke w/Jeffery + told him he can reorder after the 
30th.'' RX 2F, at 4; see also GX 22, at 145 (SOMS note: ``releasing Oxy 
with reservation reduced to be @CSL for June.''). While the CSL is far 
closer to the CSL which should have been in place at the time of the 
March 2010 orders, there is no evidence as to how this new CSL level 
was set.
---------------------------------------------------------------------------

    \128\ There are, however, entries in both the SOMS notes and 
MFRs dated May 10, 2010. The MFR note states ``UR on file Oxy 30 68k 
15 mg 23k'' and ``Only purchases 30's & 15's.'' RX 2F, at 4. To be 
clear, the last UR on file had been obtained on December 15, 2009 
and covered the month of November 2009. Further entries in the MFR 
notes state ``April 75K, March 80K,'' an apparent reference to the 
pharmacy's oxycodone purchases from Respondent in the two previous 
months, and then lists the names of its distributors: ``McKesson, 
Anda[,] Masters.'' Id. The final entry in this note states: ``120 
scripts a day, currently.'' Id.
     As for the SOMS note, it states ``rlease [sic] order do nto 
[sic] ship over 50k without review.'' GX 22, at 145. As stated 
above, there is no other evidence that Medical Plaza placed any 
order for oxycodone on or about May 10 and it is unclear to which 
drug this note pertains.
---------------------------------------------------------------------------

    On July 1, 2010, Medical Plaza placed an order for 20,000 du of 
oxycodone 30 mg. GX 22, at 145. However, Respondent shipped only 14,000 
du. GX 22, at 145. A SOMS note for the order states: ``ok to ship 140 
Oxy 30 mg, order has been edited from 200 to meet CSL of 14000.'' Id. 
Yet, on filling the order, Respondent had actually shipped 28,000 du in 
the last three days, thus exceeding the CSL on a rolling 30-day basis. 
However, Respondent did not contact the pharmacy to obtain an 
explanation for the order and it again failed to obtain a new UR.
    According to a July 14 note in the Ship to Memos made by Ms. 
Seiple, on that date, Respondent placed Medical Plaza's account ``on 
termination per sales surrounding issues of customer and ratio.'' GX 
22, at 141. However, on July 22, Ms. Seiple created a second Ship to 
Memo which states that Medical Plaza was actually only ``on noncontrol 
status per sales until further notice'' and that she would ``get [an] 
update from sales'' four days later. Id. at 142. Ms. Seiple noted that 
she had ``request [an] updated ur'' and placed Medical Plaza on the 
``tentative site visit list.'' Id.
    An initial entry in the MFRs for July 30 states that an order for 
10,300 oxycodone 30 was deleted because Medical Plaza was on non-
control status. RX 2F, at 4. However, a further entry establishes that 
the same day, the sales department approved the pharmacy to resume 
purchasing controlled substances. Id. While Ms. Seiple had requested 
that Medical Plaza provide a new UR eight days earlier, Respondent 
filled its order for 10,300 du of oxycodone 30 mg without obtaining the 
UR. GX 10F, at 42. Moreover, the order placed Medical Plaza's orders on 
a rolling 30-day basis at 24,300 du, more than 10,000 du over its 
CSL.\129\ However, there is no evidence that Respondent obtained an 
explanation for the order.
---------------------------------------------------------------------------

    \129\ A Ship to Memo dated July 14 states that the ``last 
control [sic] purchase'' was ``being returned'' because the ``wrong 
product'' was ordered. GX 22, at 141. However, according to 
materials Respondent provided on the SOMS, the monthly totals used 
in determining whether an order exceeded the CSL ``include product 
returned when it is calculated'' and ``[t]he rolling 30 day invoice 
history will include invoices and credit memos from the past 30 
days.'' RX 78, at 60. Thus, the fact that Medical Plaza returned the 
July 1 order should have had no effect on whether subsequent orders 
exceeded the CSL on a rolling 30-day basis.
---------------------------------------------------------------------------

    Only four days later on August 3, Respondent filled Medical Plaza's 
order for 12,200 du of oxycodone 30. GX 10F, at 42. Moreover, while the 
order clearly placed the pharmacy over the 14,000 du CSL on a rolling 
30-day basis,\130\ the SOMS notes contain no indication that the order 
was flagged for additional review.\131\
---------------------------------------------------------------------------

    \130\ Notwithstanding that the SOMS materials state that 
returned product would be counted in calculating the CSL, an August 
17 SOMS note states that the CSL remained at 14,000 du. GX 22, at 
145.
    \131\ As discussed above, in its Exceptions, Respondent 
contended that ``the only orders that were held by SOMS were those 
that also have the name of a Compliance Department employee in the 
``Decision By'' column and in most cases, notes in the ``Notes'' 
column. Resp. Exceptions, at 13. While there are two entries for 
orders in in the SOMS notes on August 3, 2010, neither entry 
includes the name of an employee or notes explaining the decision 
that was made on the shipment.
---------------------------------------------------------------------------

    On August 17, Medical Plaza placed an order for 20,000 du of 
oxycodone 30. GX 22, at 145. While both the MFRs and SOMS notes state 
that the order was reduced to 1,800 du to keep Medical Plaza at its CSL 
of 14,000 du, other notes state that Respondent deleted the order and 
told its pharmacist that he needed to provide an ``updated UR'' and 
needed to re-order after the UR was reviewed. RX 2F, at 4; GX 22, at 
145.
    On August 19, Medical Plaza faxed to Respondent a UR for the month 
of July 2010. RX 2F, at 12-30. The UR showed that during that month, 
Medical Plaza had dispensed 118,848 du of oxycodone 30 and 41,160 du of 
oxycodone 15; its total dispensings of just these two drugs were 
160,008 du, out of its total dispensings of 285,977.85 du. RX 2F, at 
12-13, 20, 30. Thus, Medical Plaza's dispensings of oxycodone 30 alone 
comprised 41.6 percent of its total dispensings, and its dispensings of 
oxycodone 15 comprised 14.4 percent. Moreover, the UR showed that 
Medical Plaza had also dispensed 21,455 du of other oxycodone products 
including OxyContin and combination oxycodone drugs.\132\ Thus, Medical 
Plaza's dispensings of oxycodone amounted to 63.5 percent of all drugs 
it dispensed. These figures were again flatly inconsistent with what 
the pharmacy had reported during the last due diligence survey. RX 2F, 
at 68

[[Page 55462]]

(representing that all controlled substances comprised 40 percent of 
all dispensings).
---------------------------------------------------------------------------

    \132\ The dispensings included 4,493 du of OxyContin 80; 1,915 
du of OxyContin 40; 60 du of OxyContin 30; 1,800 du of OxyContin 20; 
690 du of OxyContin 10; and 810 du of oxycodone 5; it also included 
1,723 du of Endocet 10/650; 7,352 du of Endocet 10/325; 162 du of 
Endocet 7.5/325; 2,075 du of oxycodone 5/325; and 375 du of Roxicet 
5/325. RX 2F, at 12-13, 15, 17, 20, 23.
---------------------------------------------------------------------------

    As with the previous URs, with the exception of carisoprodol, the 
top ten drugs dispensed were controlled substances, whether this was 
determined on the basis of the number of prescriptions or the number of 
dosage units. Id. at 12. So too, the financial data for drugs such as 
oxycodone 15 and 30, as well as alprazolam 2, were blacked out. Id. And 
once again this information was ignored by Respondent.
    Also on August 19, Medical Plaza placed an order for 20,000 du of 
oxycodone 30 mg. GX 22, at 145. Upon placing this order, Medical 
Plaza's oxycodone orders totaled 42,500 du on a rolling 30-day basis, 
more than three times the CSL of 14,000 du. GX 10F, at 42.
    Regarding the order, the SOMS note states: ``ok to ship 64 bottles 
of Oxy 30mg, order was edited from 200 to 64. Another order can be 
resubmitted after 9/1/10.'' GX 22, at 145. Moreover, a note in the Ship 
to Memos of the same date states: ``maintain 18600.'' GX 22, at 142. 
While Respondent shipped only 6,400 du (bring the total filled orders 
to 28,900 du), GX 10F, at 42; Respondent's various records contain no 
explanation as to why the order was approved even though the order 
placed the Medical Plaza over the CSL (both before and after editing), 
whether the CSL was 14,000 du, 18,600 du, or even if the CSL had been 
revised upwards (to 24,300) based on the July orders. Moreover, the 
order was not reported as suspicious.
    On September 1, Respondent filled Medical Plaza's order for 10,000 
du of oxycodone 30 mg. GX 10F, at 42. On a rolling 30-day basis, 
Medical Plaza orders totaled 28,600 and thus again exceeded the CSL. 
Id. The SOMS note for the order states: ``rwr Oxy w/in monthly buying 
pattern leaves 8600 as of 9/1.'' GX 22, at 145. Here again, the fact 
that the CSL had been exceeded was ignored and Respondent failed to 
contact Medical Plaza and obtain an explanation for the order and a new 
UR.
    On September 7, Medical Plaza placed an additional order for 
oxycodone and the evidence shows that Respondent shipped 8,600 du of 
oxycodone 30. GX 10F, at 42. The corresponding SOMS note states: ``rwr 
Oxy edited to meet CSL.'' GX 22, at 145. While the evidence does not 
establish order's size before it was edited, upon filling the order, 
Respondent had shipped 25,000 du of oxycodone 30 on a rolling 30-day 
basis. GX 10F, at 42. Thus, even if the CSL had been reset at 24,300 du 
based on Medical Plaza's July orders, Respondent again filled an order 
which placed the pharmacy over its CSL. Yet there is no evidence that 
Respondent contacted the pharmacy and obtained an explanation for the 
order or a new UR.
    On October 1, Respondent filled an order for 16,800 du of oxycodone 
30. GX 10F, at 42. Upon filling this order, Respondent had shipped 
25,400 du of oxycodone 30 within the rolling-30-day period and thus 
exceeded the CSL. Id. While there are multiple SOMS entries for orders 
that were placed on this date, two of which indicate that Ms. Seiple 
reviewed them, the only notation for either of these orders is ``rwr'' 
or release with reservation. GX 22, at 146. No further explanation 
exists anywhere in Medical Plaza's file explaining why Respondent 
filled the oxycodone 30 order, and there is no evidence that Respondent 
contacted the pharmacy to obtain an explanation for the order and a new 
UR.
    On November 5, Respondent filled an order for 8,400 du of oxycodone 
30 mg, and on December 1, it filled two orders totaling 16,800 du of 
oxycodone 30 mg. GX 10F, at 42. While the November 5 order did not 
exceed the CSL, upon filling the December 1 order, Respondent had 
shipped to Medical Plaza 25,200 du on a rolling 30-day basis and thus 
exceeded the CSL. GX 10F, at 42. As for the two December 1 SOMS 
entries, only one provides the name of a reviewer (Ms. Seiple) and the 
accompanying note merely states: ``rwr.'' GX 22, at 146. Again, no 
further explanation exists in Medical Plaza's file for why Respondent 
filled the order, and there is no evidence that Respondent contacted 
the pharmacy to obtain an explanation for the order and a new UR.
    On January 4, 2011, Medical Plaza placed an order for 20,000 du of 
oxycodone 30 mg. GX 22, at 143. According to the SOMS, the order was 
edited to 16,800 du, id., and according to the Government's evidence, 
this amount was shipped. GX 10F, at 42. An MFR note of the same date 
states: ``Keep Oxy @16,800'' and ``Don't Ship over'' with an arrow 
pointing to ``16,800,'' as well as ``CSL is 14k.'' RX 2F, at 4.
    Additional notes in the same MFR entry, which appear to have been 
made by Ms. Seiple, state: ``inquire on vendors McKesson/? '' and 
``said they use quite a bit of insurance on oxy? How then can their 
[sic] be a profit? '' Id. A further entry includes the names of two 
distributors (McKesson and Keysource) and indicates that Medical Plaza 
was being reimbursed by insurance at a lower rate ($32.00) than the 
cost of the oxycodone ($39.00) and was ``losing money.'' \133\ Id.
---------------------------------------------------------------------------

    \133\ The entry also states that ``released 100 of 168 bottles 
ordered.'' RX 2F, at 4. However, while I find that the order was 
edited, the Government's evidence establishes that Respondent 
shipped 16,800 du of oxycodone 30 to Medical Plaza. GX 10F, at 42.
---------------------------------------------------------------------------

    The same day, Respondent obtained a new UR from Medical Plaza. Id. 
at 31. The UR, which covered the month of December 2010, showed that 
Medical Plaza had dispensed 58,173 du of oxycodone 30 mg and 7,006 du 
of oxycodone 15 mg and that its total dispensings of all drugs were 
190,760 du.\134\ Id. at 31-32, 42, 53. Moreover, in contrast to the 
previous URs, the financial data for oxycodone and other highly abused 
drugs were not blacked out and showed that Medical Plaza was making 
profits approximately three times its acquisition cost for oxycodone 
30.\135\ Thus, contrary to what Ms. Seiple expressed in the MFR, 
Medical Plaza was clearly not losing money on oxycodone.
---------------------------------------------------------------------------

    \134\ While this represented a decrease in Medical Plaza's 
dispensings, by this date, law enforcement and regulatory 
authorities had begun cracking down on rogue pain clinics in 
Florida.
    \135\ With respect to oxycodone (NDC 00406-8530-01), Medical 
Plaza dispensed 23,960 du; its acquisition cost was $11,631.61 and 
its profit was $35,482.44. RX 2F, at 31. With respect to oxycodone 
(NDC 57664-0224-88), Medical Plaza dispensed 14,078 du; its 
acquisition cost was 11,262.40 and its profit was $32,483.17. Id. 
With respect to oxycodone 30 (NDC 52152-0215), Medical Plaza 
dispensed 10,721 du; its acquisition cost was $4,458.87 and its 
profit was $25,190.92. Id. With respect to oxycodone 30 (NDC 10702-
0000-01), it dispensed 8,014 du; its acquisition cost was $6,972.18 
and its profit was $19,108.37. Id.
---------------------------------------------------------------------------

    On February 1, 2011, Respondent filled an order from Medical Plaza 
for 10,000 du of oxycodone 30, and on February 2, it filled an order 
for 6,800 du of the drug. GX 10F, at 42. Notes written on the UR and in 
the MFRs show that Ms. Seiple reviewed the UR and determined that 
oxycodone in the dosage strength of 30 mg and 15 mg amounted to ``63K'' 
out of ``190K'' or ``33%'' of its dispensings.\136\ RX 2F, at 5. An MFR 
note of February 2 indicates that Ms. Seiple raised with Wayne Corona 
the ``reimbursement issue w/insurance'' and that Corona stated that the 
issue was ``not a problem.'' Id. at 4. Still another MFR note made by 
Ms. Seiple on the same day states: ``68 bottles of oxy released per 
committee RWR'' and ``purchasing multiple NDC on product--Monitor.'' 
Id. at 5.
---------------------------------------------------------------------------

    \136\ The actual figures are 65,179 du and 34 percent.
---------------------------------------------------------------------------

    According to an MFR note, on March 2, 2011, Medical Plaza placed an 
order for 16,800 du of oxycodone 30mg, which was released with 
reservation. Id. However, an MFR note of March 3 made

[[Page 55463]]

by Ms. Seiple states: ``suspended sales until physicians list is 
provided and reviewed by compliance committee in addition to site 
visit.'' Id. Continuing, the note states: ``Account will remain on CH 
[compliance hold] until detailed physicians list and review is 
completed.'' Id.
    Yet a SOMS note dated March 4, 2011 states: ``rwr-oxy @qty 168.0 3-
4-11,'' thus indicating that the March 2 order was filled after Medical 
Plaza had purportedly been placed on compliance hold. GX 22, at 143; 
see also GX 10F, at 42. Notably, Medical Plaza's file does not contain 
a physicians list and an MFR entry for April 1, 2011 states: ``CH--no 
information sent to date for review.'' RX 2F, at 5. While the SOMS 
notes contain entries suggesting that additional controlled substance 
orders were placed on March 7 and April 13, 2011, see GX 22, at 143; 
the Government's printout of filled orders does not include any 
additional orders after March 4, 2011.\137\ However, Respondent never 
reported any of Medical Plaza's orders as suspicious.
---------------------------------------------------------------------------

    \137\ The Government's printout of ARCOS data would not have 
included schedule IV drugs such as alprazolam. 21 CFR 1304.33(d). 
Nor would it have included drugs such as tramadol and carisoprodol, 
which were subject to the SOMS.
---------------------------------------------------------------------------

    As for Respondent's distributions to Medical Plaza, Ms. Seiple's 
declaration was comprised primarily of the same testimony she provided 
with respect to the previous pharmacies. For example, Ms. Seiple noted 
that before shipping controlled substances to Medical Plaza, Respondent 
verified that its Florida pharmacy license and DEA registration were 
valid and that it obtained a copy of the most recent DOH inspection. 
She also asserted that based on the description provided by Medical 
Plaza as to its policies and procedures, Respondent believed that the 
pharmacy understood its obligations to prevent diversion ``and was 
taking affirmative steps'' to prevent diversion. RX 103, at 66. Yet in 
contrast to previous surveys, Respondent did not ask how the pharmacy 
ensured that the prescriptions were issued by doctors acting in 
accordance with the standard of care, let alone how the pharmacy 
ensured that the prescriptions it filled were being issued for a 
legitimate medical purpose.
    Ms. Seiple further asserted that based on a due diligence survey 
and the onsite inspection that was conducted on June 18, 2009, 
Respondent obtained information that ``Medical Plaza was located in a 
medical center with 60 physicians, and the pharmacy serviced patients 
from that medical center and an adjacent hospital.'' Id. at 66-67. Ms. 
Seiple then asserted that ``[t]his accounted for the volume of pain 
medications being dispensed, and the percentage of oxycodone dispensed 
relative to other drugs.'' Id. Yet during the site visit, Respondent's 
inspector had noted that the pharmacy did not fill prescriptions for 
practitioners who were primarily engaged in pain management. See RX 2F, 
at 60.
    So too, the mere presence of 60 doctors located in the same medical 
office building, without any investigation into the doctors' 
specialties and the drugs they would prescribe in the course of their 
respective professional practices does not justify the volume of pain 
medications being dispensed by Medical Plaza or the percentage of 
oxycodone the pharmacy was dispensing relative to other drugs. Also, 
Respondent did not even obtain a UR until August 11, 2009, at which 
point it had been selling oxycodone to Medical Plaza for more than four 
months, and that UR showed that oxycodone comprised more than 51 
percent of the pharmacy's total dispensings. Moreover, the percentage 
of Medical Plaza's total dispensings comprised by oxycodone alone was 
more than 2.5 times the 20 percent figure provided by DEA during the 
Compliance Review for all controlled substances as a percentage of a 
pharmacy's total dispensings.
    As with the previous pharmacies, Ms. Seiple asserted that ``[a]fter 
Medical Plaza's account was approved, [the] SOMS . . . identified and 
held any order for controlled substances placed by Medical Plaza that 
deviated from its typical volume, pattern or frequency'' and that 
``[a]ll such orders were released only after review by [the] Compliance 
Department.'' RX 103, at 67. Here again, the SOMS was not even 
operational until August 2009, more than four months after Medical 
Plaza had begun purchasing controlled substances from Respondent.
    Moreover, even after the SOMS became operational, there were 
numerous instances in which Medical Plaza's orders placed it over the 
CSL on a rolling 30-day basis and yet Respondent failed to obtain an 
explanation for the order, or a new UR, even though these steps were 
required by Respondent's policy and procedure for reviewing held 
orders. And in numerous instances when orders were either deleted or 
edited, Respondent failed to file a suspicious order report.
    While Ms. Seiple further asserted that ``[o]n some occasions, the 
Compliance Department would request [Medical Plaza] to provide a UR,'' 
id., it obtained only four URs over the course of the nearly two-year 
period in which it distributed oxycodone to the pharmacy. And when it 
obtained URs for the months of November 2009 and July 2010, it ignored 
information showing that the pharmacy was dispensing increasing 
quantities of oxycodone, as well as that Medical Plaza's dispensing of 
oxycodone products comprised 62 percent of its total dispensings.
    So too, while Medical Plaza represented at various points that 70 
to 80 percent of the prescriptions were paid for by third party payors 
(such as insurance and Medicare/Medicaid), the financial data showing 
the profits on its sales of oxycodone 30 and 15 were blacked out on all 
but the final UR it provided. Yet there is no evidence that Respondent 
ever questioned Medical Plaza as to why it blacked out the data. 
Moreover, when Respondent did obtain the final UR, the data (which were 
not blacked out) showed that Medical Plaza was making profits three 
times or more its acquisition cost on generic oxycodone 30 and 15 
products.
    Ms. Seiple documented her concerns as to how Medical Plaza could be 
making any money given that its cost for the oxycodone was more than 
the amount that insurance would reimburse for it, as well as that she 
had raised the issue with Wayne Corona, who overruled her concerns. 
While Ms. Seiple asserted that the URs and other information were 
``consistent with the pharmacy's business model as explained by [its 
PIC] and confirmed in the June 2009 site inspection,'' she failed to 
address why Respondent did not question Medical Plaza as to why the 
financial data for its controlled substance dispensings were blacked 
out on the URs. Ms. Seiple also failed to address why Respondent 
continued selling controlled substances even after the fourth UR showed 
that Medical Plaza was not ``losing money'' on its dispensings of 
oxycodone but making substantial profits.
    Ms. Seiple acknowledged that Respondent did not report any of 
Medical Plaza's orders as suspicious, asserting that ``[b]ased on [its] 
extensive investigation, it determined that the orders it shipped to 
Medical Plaza were not suspicious.'' RX 103, at 68. Here again, 
however, Respondent simply accepted whatever reason it could find that 
it believed would justify ignoring the evidence provided by the URs 
regarding the level of Medical Plaza's dispensings of oxycodone and 
continued to distribute the drugs to Medical Plaza. Thus, while--as Ms. 
Seiple admitted--Respondent was obviously ``aware of the volume of 
oxycodone and other controlled drugs being dispensed by Medical Plaza 
and

[[Page 55464]]

the percentage of controlled drugs dispensed relative to other drugs,'' 
it had no valid basis for failing to report the orders as suspicious.

Temple Terrace Pharmacy D/B/A Superior Pharmacy

    Superior Pharmacy, a community pharmacy located in Temple Terrace, 
Florida, became a customer of Respondent in January 2008. RX 2H, at 81; 
RX 103, at 72. Prior to Superior's first purchase of controlled 
substances, Respondent obtained copies of its DEA registration and 
State license. RX 2H, at 18-19.
    On May 2, 2008, an account manager completed a Schedule Drug Limit 
Increase Request Form, requesting an increase in the amount of solid 
dose oxycodone products Superior could purchase and noting on the form 
that Superior was using 25,000 du per month. Id. at 83. Thereafter, on 
May 9, 2008, Respondent verified that Superior's PIC, as well as 
another officer of the entity, held active Florida pharmacist licenses. 
Id., see also id. at 79-80.\138\
---------------------------------------------------------------------------

    \138\ It also re-verified that the Superior held a valid state 
license and a DEA registration. RX 2H, at 77-78.
---------------------------------------------------------------------------

    As part of reviewing Superior's request, on June 6, 2008, 
Respondent contacted Superior to complete a Due Diligence Report Form. 
Id. at 81. On the form, Respondent documented that Superior filled an 
average of 130 prescriptions per day and that 15 percent of the 
prescriptions were for schedule II drugs; Superior also reported that 
controlled substance prescriptions comprised 20 percent of the 
prescriptions. Id. Superior represented that it did not do mail order, 
that it serviced one nursing home but had no contracts with such 
facilities, that it accepted insurance as well as Medicare and 
Medicaid, and that 90-95 percent of the prescriptions were paid for by 
insurance. Id.
    Elsewhere on the form, Respondent lined out the section which asked 
whether the pharmacy had ``[r]elationships with specific doctors/
clinics,'' thus indicating that Superior had no such relationship. Id. 
As for its policies and procedures, Superior reported that it prevented 
doctor shopping by verifying prescriptions, by not providing early 
refills, and by keeping a patient profile. Id. at 82. As for how it 
ensured that doctors exercised proper standards of care, Superior 
replied that it did a ``license check.'' Id. Superior also reported 
that it had refused prescriptions because the quantities were large, 
the prescription looked strange, or it could not verify the 
prescriptions with the doctor. Id. As for whether it had ever refused 
to fill prescriptions written by ``a certain physician,'' Respondent's 
employee noted that Superior had ``not cut off doctor, but refuses 
scripts often.'' Id. While the form also included the question of 
whether ``the pharmacy practices due diligence on specific 
prescribers,'' the box next to this question was left blank with a 
small line drawn in the space for providing a description.\139\ Id.
---------------------------------------------------------------------------

    \139\ Off to the right of this question (in and near the margin) 
is the notation: ``Tampa--100 mile radius.'' RX 2H, at 82. While the 
form contains other notations in the right margin, including one 
which is dated ``6/23/09,'' id., it is unclear when this notation 
was made.
---------------------------------------------------------------------------

    Finally, Respondent's employee noted that she had requested that 
Superior provide its ``[m]ost recent state inspection report'' and a 
``[c]omplete usages controls/non-controls of one full calendar month.'' 
Id. Of further note, Respondent's employee noted that Superior's 
pharmacist had said ``they are way to busy to deal with this,'' and 
that after she requested the additional documents, the pharmacist 
``said she doubts she will ever fax that to me.'' Id.
    However, on June 11, Superior faxed to Respondent a UR and a copy 
of its most recent DOH inspection report. As the fax cover sheet from 
Superior notes, the documents were faxed ``so that our quota on C2 may 
be increased.'' Id. at 74. But as the cover sheet explained, the UR, 
which covered the period of January 1 to through June 10, 2008, only 
included Superior's ``top 100 drugs dispensed.'' Id.; see also id. at 
71-72.
    As for the UR, it showed that oxycodone 30 mg was the drug most 
dispensed by Superior during the period, with total dispensings of 
337,201 du or 63,503 du per month. Id. at 71. It also showed that 
Superior had dispensed 21,779 du of oxycodone 15 and 48,341 du of 
Endocet 10/325 during the period. Id.
    On June 24, 2008, a consultant for Respondent conducted a site 
visit at Superior. Id. at 65. According to the consultant's report, 
Superior did not engage in internet business and sold ``minimal'' front 
store items. Id. at 65. The consultant also reported that Superior 
filled 100 prescriptions per day, of which 25 percent were for 
controlled substances. Id. at 66. While Superior reported that it did 
not service nursing homes and hospice programs, it reported that it 
serviced a juvenile inpatient facility. Id. The pharmacy further 
reported that 10 percent of its business was cash and 90 percent was 
paid for by either insurance or Medicare/Medicaid. Id. Next, Superior 
reported that it had three distributors in addition to Respondent. Id. 
at 67. Superior also acknowledged that it filled prescriptions for pain 
management clinics and provided the names of four pain management 
physicians, their DEA numbers, and indicated that they practiced in 
Tampa.\140\ Id. at 70.
---------------------------------------------------------------------------

    \140\ In the form's section which lists the names of the four 
pain physicians, the name ``Merced'' is also listed without a DEA 
number and the name of the city in which he practiced. RX 2H, at 70. 
A note in the margin dated ``9-25-09'' suggests that this name was 
added on that date.
---------------------------------------------------------------------------

    In the additional comments section of his report, Respondent's 
consultant wrote that the pharmacy shared its ``waiting area'' with ``a 
pain/weight control clinic.'' Id. The consultant further documented 
that ``[t]he pharmacy is located within a space that it shares with 
Superior Medical Center. This center specializes in weight loss and 
pain management. Many of their prescriptions originate within the 
clinic.'' Id. at 69-70. Included with the report were two photographs 
which showed the front of the pharmacy and its signage. The top portion 
of Superior's sign read: ``SUPERIOR PHARMACY  WALK IN CLINIC'' 
and the bottom portion read: ``Pain Management & Weight Loss.'' Id. at 
68.
    On July 1, 2008, Respondent printed out the Web page for Superior 
Medical Center. Id. at 49. The left side of the page promoted Superior 
Medical Center with the words ``Pharmacy  Pain  Weight 
Loss'' underneath. Id. On the right side, the page promoted Superior 
Pain Clinic with a banner that read: ``Are You Experiencing Pain?'' 
then listing various cause of pain, followed by ``Stop suffering in 
silence. >> Let us help you!'' Id.
    The center of the page contained the heading ``Superior Medical 
Centers are here to help you!'' along with additional blurbs promoting 
its pain management clinic (``Don't live in pain. Trust the medical 
professionals at Superior Pain Clinic to help you enjoy life again!''), 
its weight loss and walk-in clinics,\141\ and the pharmacy (``Superior 
Pharmacy is your neighborhood drug store offering personalized customer 
service and free home delivery.''). Id. Still other blurbs offered a 
``free office visit or $20 dollar credit on RX'' for referring ``a 
friend or family'' and promoted that ``No Appointment Needed.'' Id.
---------------------------------------------------------------------------

    \141\ Other photographs in the due diligence file show that the 
Pain Clinic and Walk-In Clinic were one and the same. RX 2H, at 28.
---------------------------------------------------------------------------

    On the same day, Respondent approved an increase in Superior's 
oxycodone purchasing limit to 25,000

[[Page 55465]]

du per month. Id. at 83. While the record contains no evidence 
regarding the level of Superior's oxycodone purchases before April 1, 
2009, the evidence shows that during April 2009, Respondent filled 
numerous orders totaling 16,800 du of oxycodone 30; 4,800 du of 
oxycodone 15; 1,200 du of Endocet 10/650; and 6,000 du of Endocet 10/
325; for a total of 28,800 oxycodone products. GX 10F, at 43-44. There 
are, however, no notes discussing any of these orders.
    On May 1, 2009, Superior placed orders, which Respondent filled, 
totaling 25,000 du of oxycodone 30. GX 10F, at 44. Here again, there 
are no notes discussing the orders.
    On June 2, Superior placed orders, which Respondent filled, 
totaling 25,000 du of oxycodone 30. Id. Moreover, on June 24, Superior 
placed orders, which Respondent filled, for 30,000 du of oxycodone 30; 
5,000 du of oxycodone 15; and 5,000 du of Endocet 10/325. Id. 
Respondent thus shipped a total of 65,000 du of oxycodone products to 
Superior during the month. Here again, there are no notes discussing 
any of these orders and the orders were not reported as suspicious even 
though they were more than double the April and May orders.
    On June 18, Respondent obtained a second UR from Superior, which 
covered the month of May. Id. at 57-64; 96-104. Notably, with the 
exception of carisoprodol, which was then controlled under Florida law 
but not the CSA, each of the top 25 drugs was a controlled substance 
under federal law. Id. at 96. Moreover, the top four drugs were 
oxycodone products, three of which were different manufacturers' 
oxycodone 30 products, the other being Endocet 10/325. Id. Also among 
the most dispensed drugs were the stronger formulations of the 
benzodiazepines alprazolam (1 mg and 2 mg) and diazepam (5 mg and 10 
mg), as well as other narcotics including oxycodone 15 mg and the 
strongest formulation of combination drugs containing either 7.5 or 10 
mg of hydrocodone. Id.
    As for Superior's dispensings of oxycodone, the UR showed that 
during May, it had dispensed a total of 60,274 du of oxycodone 30; 
6,272 du of oxycodone 15; and 11,641 du of Endocet 10/325. RX 2H, at 
96, 99, and 103. During the month, Superior's total dispensings of all 
prescriptions products were 209,481 du. Id. at 64. Thus, Superior's 
dispensings of oxycodone 30 alone comprised 28.8 percent of its total 
dispensings, and its dispensings of its top three oxycodone products 
(78,187 du) comprised 37.3 percent of its total dispensings.
    On June 23, Respondent conducted a due diligence assessment 
(apparently by telephone) and re-verified that Superior held a DEA 
registration and a Florida Pharmacy license. RX H2, at 53, 56. 
According to the due diligence assessment, Superior did not claim that 
its primary customer base was workers compensation, pain management, or 
bariatric patients.\142\ Id. at 51. Yet as found above, during the site 
visit, Respondent's consultant had reported that Superior shared space 
with a pain management and weight loss clinic \143\ and that Superior's 
staff had told him that ``[m]any of their prescriptions originate 
within the clinic.'' Id. at 70.
---------------------------------------------------------------------------

    \142\ Indeed, it is unclear what Superior reported as its 
primary customer base, as the box for a ``community'' pharmacy was 
not checked (nor the box for ``other'') and there is no description 
next to the box that was checked. RX 2H, at 51.
    \143\ Superior did report that it was located within a medical 
clinic. RX 2H, at 51.
---------------------------------------------------------------------------

    Moreover, Superior now reported that it filled ``280'' 
prescriptions per day and that its ``daily ratio of controls to 
noncontrols [was] ``50/05'' [sic]. Id. Yet during the site visit, 
Superior had reported that it filled 100 prescriptions per day and that 
25 percent of the prescriptions were for controlled substances. Id. at 
66.
    As for its policies and procedures, Superior reported that it did 
not fill prescriptions for patients and prescriptions written by 
doctors, unless the patients and doctors were within ``a 100 mile 
radius around Tampa.'' Id. at 52. As for its procedures to prevent 
doctor shopping, Superior advised that it called and verified all 
controlled prescriptions and watched the patients, and as for its 
procedures to ensure the prescribers were exercising proper standards 
of care, it asserted that it would ``[c]all and verify.'' Id. While 
Superior reported that it had ``refused to fill a prescription'' if it 
was ``too soon,'' it also advised that it had never ``decided to 
permanently stop filling scripts for a certain physician.'' Id.
    Next, Superior provided the names of two physicians whose 
controlled substance prescriptions it filled (Dr. Mercedes and Dr. 
Hubang). Id. The same day, Respondent printed out a license 
verification and practitioner profile for the aforementioned Dr. Merced 
(but not a Dr. Mercedes) from the Florida DOH Web site. Id. at 54-55. 
Of note, the printouts showed that Dr. Merced's address of record was 
in Jamestown, North Carolina and not Tampa. Id.
    Moreover, Respondent did not obtain printouts for either a Dr. 
Mercedes or a Dr. Hubang, and it did not conduct any further 
investigation into these physicians who were practicing pain management 
at Superior. See generally RX 2H. As for the latter, MFR notes dated 
September 25 spell the latter's name as Mubang. RX 2H, at 1. Yet there 
is no evidence that Respondent's compliance department conducted a 
license verification on a Dr. Mubang either, even though the notes 
indicated that Respondent was aware that he was writing prescriptions 
at the Superior Pain Clinic. See generally RX 2H. Nor did it check the 
license status of any of the physicians who Superior had previously 
identified as pain management physicians whose prescriptions it filled. 
And while various forms in the Due Diligence file indicate that 
Respondent conducted a Google Search of Superior Pharmacy, id, at 50-
52, it did not conduct a Google Search of the doctors who were working 
at the Superior Medical Center. Had it done so, it would likely have 
come across a press release issued on July 16, 2008 by the Florida 
Department of Law Enforcement announcing the arrest of John Nkolo 
Mubang ``for allegedly trafficking in prescription drugs while he 
worked as an internal medicine doctor at a Tampa medical facility he 
owns and operates.'' \144\
---------------------------------------------------------------------------

    \144\ Pursuant to 5 U.S.C. 557(e), I take official notice of the 
aforesaid press release, which can be accessed at http://www.fdle.state.fl.us/Content/News/2008/July-2008/Hillsborough-County-Doctor-Charged-with-Prescripti.aspx. Respondent shall have 
ten (10) business days from the date of issuance of this order to 
refute the above facts by filing a motion with this Office.
---------------------------------------------------------------------------

    Finally, the form provided a place to note either ``unusual 
answers'' or other relevant information. Id. at 52. In this place, 
Respondent noted: ``60% open door and 45% clinic'' [sic]. Id.
    The next day (June 24), Respondent filled Superior's orders for 
30,000 du of oxycodone 30; 5,000 du of oxycodone 15; and 5,000 du of 
Endocet 10/325. GX 10F, at 44. It did not report the orders as 
suspicious, notwithstanding that Superior's June orders were 40,000 du 
and 2.6 times greater than its May orders and despite the various 
inconsistencies in the information it possessed regarding Superior's 
business.
    On July 1, Respondent filled Superior's orders for 45,000 du of 
oxycodone 30 and 200 du of Endodan, a drug combining oxycodone and 
aspirin. GX 10F, at 43-44. Moreover, on July 23, Respondent filled 
Superior's orders for 20,000 du of oxycodone 30, thus resulting in 
total shipments of 65,200 du for the month. Id. at 44. There is, 
however, no documentation explaining why the orders, which exceeded 
Superior's purchasing limit, were filled. Nor were the orders reported 
as suspicious.

[[Page 55466]]

    On August 11, Respondent filled Superior's order for 40,000 du of 
oxycodone 30. GX 10F, at 43. However, while there are SOMS notes for 
orders placed on August 6 and 7--thus indicating that the system was 
then functioning--there are no entries for orders placed on August 11. 
GX 24, at 106.
    Moreover, on August 28, Respondent filled Superior's order for 
35,000 du of oxycodone 30, thus bringing its total shipments of 
oxycodone 30 to 75,000 du or the month. GX 10F, at 43. While there are 
multiple orders listed in the SOMS notes with the date of August 27, 
several of which list the name of an employee who approved the order 
and notations such as ``to ship within current size limit for 30 day 
period,'' the notes do not specify which drugs these orders were for. 
GX 24, at 106. Moreover, because the record contains no evidence as to 
Superior's orders before April 1, 2009, there is insufficient evidence 
as to its six-month ordering history and thus, its oxycodone CSL cannot 
be determined as of this month.
    On September 14, Respondent filled Superior's orders for 30,000 du 
of oxycodone 30 mg. GX 10F, at 43. Moreover, on September 24, 
Respondent filled an order for 5,000 du of Endocet 10/325. GX 10F, at 
43. According to a note in the MFRs, on September 24, Superior placed 
three orders ``for 30k [thousand] pills'' and the order was ``held.'' 
RX 2H, at 1. While this entry does not specifically identify that the 
order was for oxycodone, an MFR entry for the next day supports the 
inference that it was.
    The note, which bears Ms. Seiple's initials, states that she 
``researched [Superior's] file and looked [at] the site visit as well 
as Web sites from 2008,'' noting that ``[t]he pharmacy is located 
inside clinic.'' Id. Ms. Seiple then wrote that she called the ``pain 
clinic and inquired about service'' and ``if I would come in for 
service d[id] they have a pharmacy inside [the] clinic. They said 
yes.'' Id. Continuing, Ms. Seiple wrote that ``per Web site & pics 
[photos,] orders are being deleted customer on CH.'' Id. Ms. Seiple 
further noted that Superior ``owes 60 K most due 10/10 9/21'' and 
``will tell account @ limit for month.'' Id. Ms. Seiple then wrote that 
she would encourage another employee ``to get payment'' and she would 
``not tell customer'' that it was ``on non controls til [sic] paid in 
full.'' Id. Ms. Seiple then noted that Superior was ``on compliance 
review.'' Id.
    To the right of this statement are more notes stating ``Additional 
updated Due Diligence Survey updated,'' below which were the following 
bullet points: ``File updated,'' ``location inside clinic,'' ``limits 
reduced,'' ``280 scripts a day,'' and ``practitioner that write scripts 
Dr. Mercedes'' and ``Dr. Mubang.'' Id. Still other notes for this entry 
included the names ``Dr--Merced'' and ``John Mubang,'' along with the 
number ``280'' surrounded by a circle, and ``65k to 25k.'' Id. Of note, 
however, all of this information was at least three months old and much 
of it had been acquired 14 months earlier. Also, while the order was 
placed on compliance hold, Respondent did not obtain an explanation for 
the order from Superior, which it then verified.
    Respondent did, however, obtain a new UR, which covered the month 
of August 2009. Id. at 31-46. The UR showed that Superior had dispensed 
80,302 du of oxycodone 30; 4,070 du of oxycodone 15, and 7,655 du of 
Endocet 10/325; it also showed that its total dispensings were 242,818 
du. RX 2H, at 32, 34, 41, 46. Thus, Superior's dispensings of oxycodone 
30 alone amounted to 33 percent of its dispensings, and its dispensings 
of the three oxycodone products amounted to 37.9 percent of its total 
dispensings. Moreover, here again, most of the drugs (19) among the top 
25 drugs dispensed by Superior were controlled substances and included 
other narcotics such as methadone and hydrocodone, as well as three 
formulations of alprazolam and two formulations of diazepam. RX 2H, at 
32. Of further note, carisoprodol was the third most dispensed drug. 
Id.
    Notwithstanding this information and the notations indicating that 
Superior had been placed on compliance hold and non-controlled status, 
or alternately, that its CSL had been reduced to 25,000 du of 
oxycodone, on September 30, Respondent filled three orders totaling 
30,000 du of oxycodone 30 mg. GX 10F, at 43. Entries in the SOMS notes 
made the same day suggest that the orders did not even trigger a review 
as they do not contain the name of a person who reviewed the order nor 
contain any notes regarding the order. GX 24, at 106.
    On October 26, Respondent shipped to Superior orders for 20,000 du 
of oxycodone 30. GX 10F, at 43. Yet on November 2, Respondent shipped 
to Superior three orders totaling 25,000 du of oxycodone 30. Id. The 
SOMS notes for this date include three entries, none of which include 
the name of a reviewer or a note, thus indicating that the orders were 
not held for review. GX 24, at 106. Yet entries in the Ship to Memos 
and MFRs state that on November 3, the account was reviewed by the 
committee and ``reduce[d] from 65k to 25k'' and that Superior had to 
``give non control [sic] orders.'' Id. at 105; see also RX 2H, at 1. 
Neither the notes nor Ms. Seiple's testimony explain why Superior's 
limit had not actually been reduced on September 25, as Ms. Seiple had 
documented in the MFR note of that date.
    According to an MFR note, on or about November 17, Superior placed 
an order for 25,000 du of oxycodone. RX 2H, at 2. The MFR note states 
that ``as of 11/3 per committee [pharmacy] need [sic] to give a non 
control [sic] order before releasing Oxy order sent email to rep.'' Id. 
Continuing, the note states: ``Acct is at their [sic] limit for the 
month[.] [O]rder will be deleted.'' Id. The note further states that an 
employee of Respondent contacted Superior's PIC, who stated that ``he 
didn't know his limits were drop [sic] to 25k.'' Id. Respondent did 
not, however, report Superior's oxycodone order as suspicious. 
Moreover, the next day, Respondent approved orders totaling 2,500 du of 
hydrocodone, which were shipped the following day. GX 10F, at 43.
    An MFR note of November 19 states that Superior's pharmacist was 
being called ``due to wrong [sic] fill 8109 product'' and that its 
``limits cut.'' RX 2H, at 2. Continuing, the note states: ``per Wayne 
collect moneys and terminate,'' ``put on CH until paid,'' ``gradually 
reduced allotment to collect moneys'' and ``owes 46k.'' Id. Still 
another note for this date (which is written in the space for dating an 
entry) states: ``partnership in clinic'' and ``[b]oth connected owns 
both.'' Id.
    According to an MFR entry of November 30, on this date Superior 
placed two orders for 200 bottles (20,000 du) of oxycodone 30. RX 2H, 
at 2. Other notes in this entry include: ``Ike own [sic] clinic & 
pharmacy,'' ``1% on non-controls'' and ``owes 31k.'' Id. A SOMS note of 
the same date by Ms. Seiple states: ``ok to ship do not ship over 10k 
on oxy this month without committee review.'' GX 24, at 107. And while 
a December 1 MFR entry then states: ``order holding'' and ``TT [talk 
to] Teri,'' an MFR entry for December 2 reads ``CSL reduced in SOMS to 
10k,'' followed by (in blue ink) ``RWR terminate--once bill is pd.'' 
Id.
    The same day (December 2), Respondent shipped to Superior 10,000 du 
of oxycodone 30. GX 10F, at 43. Respondent did not report the order as 
suspicious even though it knew that Superior's pharmacist owned both 
the pharmacy and the pain clinic.
    Moreover, on December 7, Respondent filled an order for 200 du of 
hydrocodone/ibuprofen tablets, a schedule III controlled substance. Id.

[[Page 55467]]

According to an MFR note, on December 10, the compliance committee 
reviewed Superior's status. RX 2H, at 2. While the MFR note states that 
the account was terminated (and also that Superior still owed money), 
id., a note in the Ship to Memo states: ``do not ship controls without 
review by jen or wayne.'' GX 24, at 105.
    While there is no evidence that Respondent filled any controlled 
substance order for Superior after December 7, 2009, on January 11, 
2010, Respondent conducted a site visit at the pharmacy. RX 2H, at 21-
29. On the form, Respondent's inspector documented that Superior 
reported that controlled substances (in schedule II-V) constituted 50 
percent of its dispensings; the inspector circled the figure and wrote 
``too high,'' which he underlined for emphasis. Id. at 23. He further 
noted that there was ``[a] pain management doctor in the same place of 
business,'' which he also circled. Id. at 24. And in the space for 
providing a general description of the pharmacy, he wrote: ``A busy 4-
lane roadway in a strip mall w/a pain clinic inside the pharmacy.'' Id.
    The inspector further recommended that a compliance review be 
conducted based on the fact that controlled substances comprised 50 
percent of Superior's dispensings. Id. at 21. The inspector also 
checked that he had observed suspicious activity outside of Superior, 
noting that there were ``several persons hanging outside pharmacy & 
sitting in vehicles--20-30 year olds--not using canes or walking with 
limps--talking about getting their meds!'' Id.
    On a second site visit recommendation which is dated two days 
later, the inspector noted that he had observed ``6 people out front of 
pharmacy talking about getting their oxys as I walked in!'' Id. at 29. 
He also noted that there were ``[n]umerous persons 20-35 yrs. old, 
hanging inside & outside pharmacy to by [sic] oxys with no apparent 
disabilities! No one limping or using canes.'' Id.
    While Respondent subsequently terminated Superior, Respondent's 
compliance staff had known since the original site visit that both a 
purported pain management clinic and the pharmacy were operating out of 
the same retail space. Yet for nearly a year and a half, Respondent 
failed to raise any questions as to the ownership of the clinic and the 
relationship between the physicians who practiced there and the 
pharmacy owner.
    Regarding Respondent's distributions to Superior Pharmacy, Ms. 
Seiple noted that before shipping controlled substances to the 
pharmacy, Respondent verified that its Florida pharmacy license and DEA 
registration were valid and obtained a copy of the most recent DOH 
inspection. She also asserted that based on the description provided by 
Superior as to its policies and procedures, Respondent believed that 
the pharmacy understood its obligations to prevent diversion ``and was 
taking affirmative steps'' to prevent diversion. RX 103, at 73. Ms. 
Seiple did not, however, address what significance she attached to the 
note on the Due Diligence Report Form (next to the question whether the 
pharmacy practiced due diligence on specific prescribers) which states, 
``Tampa--100 mile radius,'' and thus suggests that Superior would fill 
prescriptions for prescribers as long as they were located within 100 
miles of Tampa.
    Next, Ms. Seiple asserted that because during the June 2008 site 
inspection, Superior's PIC had ``explained that [its] business model 
included filling prescriptions for a juvenile in-patient facility, and 
a weight-loss and pain management facility located in an adjacent 
office . . . [t]hese factors accounted for the volume of controlled 
substances being dispensed, and the percentage of oxycodone dispensed 
relative to other drugs.'' Id. However, while the consultant reported 
that Superior claimed it was servicing a juvenile in-patient facility, 
Respondent obtained no information regarding the facility, including 
its name, the number of patients it treated, the type of conditions it 
treated and the drugs prescribed in the course of treatment, and the 
names of its doctors. Thus, the mere fact that Superior provided 
prescriptions for this facility falls well short of justifying the 
volume of its oxycodone dispensings and the percentage of its 
dispensings comprised by oxycodone.
    As for Ms. Seiple's assertion that the pain management and weight 
loss clinic were ``located in an adjacent office,'' Respondent's 
consultant actually reported that ``[t]he pharmacy is located within a 
space that it shares with Superior Medical Center.'' RX 2H, at 70. Of 
further note, interspersed with the pages of the consultant's report 
were photographs showing the store front and its signage; these photos 
clearly showed that the pharmacy and clinic were located in the same 
space. Id. at 68.
    Moreover, one week after the consultant conducted his inspection, 
Respondent obtained a printout of Superior's Web page. The Web page 
clearly showed that Superior was marketing itself as both a pain clinic 
and pharmacy, thus providing a form of one-stop shopping. And a second 
printout of Superior's Web page--which was not obtained until September 
2009--provided the same street address for both the pharmacy and the 
pain clinic. Thus, while the presence of Superior's pain clinic may 
well have been a factor which ``accounted for the volume of controlled 
substances being dispensed, and the percentage of oxycodone dispensed 
relative to other drugs,'' this does not establish that those 
dispensings were for a legitimate medical purpose.
    In her declaration, Ms. Seiple did not address why, in light of the 
information she had obtained that the clinic and pharmacy shared the 
same space and were marketed together, Respondent failed to investigate 
the relationship between the pharmacy and pain clinic until 15 months 
later.\145\ See generally RX 103, at 72-75. Nor did Ms. Seiple explain 
why it took 17 months for her to even ask Superior's PIC about the 
ownership of the clinic. See id. Moreover, while at the hearing 
Respondent asserted that in early 2009, it had cut off selling to 
physicians who were directly dispensing oxycodone to their patients, 
Ms. Seiple offered no explanation for why this policy did not warrant 
cutting off Superior given that it promoted itself as both a pain 
clinic and pharmacy. See id. Nor did she explain why Respondent 
continued to distribute oxycodone to Superior even after she called the 
pain clinic and was told that there was ``a pharmacy inside [the] 
clinic.'' See id.; see also RX 2H, at 1.
---------------------------------------------------------------------------

    \145\ As found above, two weeks before the site visit, 
Respondent conducted a phone survey to evaluate Superior for an 
increase in its oxycodone purchasing limit. RX 2H, at 81. One of the 
questions on that form specifically asked if the pharmacy had 
``[r]elationships with specific doctors/clinics?'' Id. Respondent's 
reviewer left the answer block blank and added scribble on the line 
provided for explaining the answer. Id.
    While this non-answer was clearly inconsistent with the 
information obtained during the site visit, there is no evidence 
that Respondent investigated whether the form was completed in this 
manner because Superior's PIC had denied the existence of any such 
relationship, or because Respondent's employee falsified the form or 
failed to ask the question.
---------------------------------------------------------------------------

    The rest of Ms. Seiple's assertions regarding Superior's ordering 
and dispensing patterns are similarly unavailing. For example, she 
asserted that ``[a]fter Superior's account was approved, [the] SOMS . . 
. identified and held any order . . . that deviated from its typical 
volume, pattern or frequency'' ' and that these orders were released 
only after review by the Compliance Department. RX 103, at 73-74. She 
also asserted that ``[b]ased on [Respondent's] extensive investigation,

[[Page 55468]]

it determined that the orders it shipped to Superior were not 
suspicious.'' Id. at 75. And she asserted that ``[t]he URs and other 
information provided by Superior were consistent with the pharmacy's 
business model as explained by the customer. Id. at 74.
    Here again, Respondent filled numerous orders for oxycodone 
products during the period between April 1 and early August 2009 during 
which the SOMS was not even operational. Moreover, while the evidence 
shows that Superior's oxycodone limit was set at 25,000 du per month 
effective July 1, 2008, and that Respondent shipped it a total of 
28,800 du (for all oxycodone products) in April 2009 and 25,000 of 
oxycodone 30 during May 2009, Respondent shipped it a total of 65,000 
due of oxycodone products during June 2009. Even though the June orders 
were more than double the April and May orders and the purported 25,000 
du limit, Ms. Seiple did not deem them suspicious. So too, she did not 
report the July orders, which totaled more than 65,000 du, as 
suspicious.
    Notwithstanding that various orders for 30,000 du of oxycodone 30 
were held on September 24, 2009, prompting Ms. Seiple to place a call 
to the pain clinic during which she was told that the pharmacy was 
located inside the clinic, followed by her deleting the orders, the 
orders were not reported as suspicious. Moreover, the compliance hold 
was short-lived as only six days later, Respondent filled three orders 
from Superior for 30,000 du of oxycodone 30. And while notes made in 
various documents indicate that Superior's CSL had been reduced to 
25,000 du, these orders were shipped without any review and were not 
reported as suspicious.
    Here again, Ms. Seiple failed to address why these orders were not 
reported as suspicious and were shipped. She also failed to address why 
various orders in October and early November 2009 did not even trigger 
review even though the orders placed Superior well over the 25,000 du 
CSL which was supposedly instituted on September 25, 2009.
    So too, in her declaration, Ms. Seiple failed to explain why in 
December 2009, Respondent shipped 10,000 more du of oxycodone 30 even 
though Ms. Seiple had by then determined that Superior's PIC owned both 
the pharmacy and the pain clinic. And here again, Respondent failed to 
report the order as suspicious. In short, Ms. Seiple's assertion that 
Respondent ``determined that the orders it shipped to Superior were not 
suspicious'' (RX 103, at 75) is disingenuous.
    As for her further assertion that the URs and other information 
provide by Superior were consistent with the pharmacy's business model 
as explained by its PIC, the evidence does show that the PIC explained 
at various points that much of the pharmacy's business involved filling 
the prescriptions written by the doctors at his pain clinic. Indeed, 
this has been reported by Respondent's consultant following the site 
visit, RX 2H, at 69-70; as well as documented in the report of the June 
23, 2009 due diligence assessment which noted that 45 percent of the 
prescriptions were from the clinic. See id. at 52. Yet while during the 
June 2008 site visit, the PIC had reported that 25 percent of the 
prescriptions it filled were for controlled substances, during the June 
2009 due diligence assessment he now reported that 50 percent of the 
prescriptions were for controlled substances. Moreover, the May 2009 UR 
showed that with the exception of carisoprodol, each of the top 25 
drugs dispensed by NDC code was a controlled substance, with three of 
the top four drugs being oxycodone 30 products (the other being Endocet 
10). Also among the top 25 drugs were multiple narcotics including 
still more oxycodone products, including three oxycodone 15 products, 
OxyContin in both 40 and 80 mg dosage, three hydrocodone products, 
methadone, two hydromorphone products, and five benzodiazepines. Id. at 
96. Contrary to Ms. Seiple's assertion, the information Respondent 
obtained from Superior was not consistent with that of a pharmacy that 
was dispensing only legitimate prescriptions but rather that of a 
pharmacy that was engaged in suspicious activity.

Morrison's Rx

    Morrison's Rx (hereinafter, Morrison's) is a community pharmacy 
located in Sunrise, Florida. RX 2G, at 127. According to Ms. Seiple, 
Morrison's established its account with Respondent in September 2007. 
RX 103, at 69. Also according to Ms. Seiple, prior to Respondent's 
first distribution of controlled substances to Morrison's, Respondent 
conducted a due diligence survey, obtained a credit application and a 
Dun & Bradstreet report. Id. While the record also establishes that 
Respondent obtained a copy of Morrison's DEA registration in September 
2007, Ms. Seiple made no claim that Respondent verified that Morrison's 
and its PIC held state licenses prior to shipping, and there is no 
evidence that the licenses were verified until an April 2008 site 
visit.
    As for Respondent's initial due diligence survey, Morrison's 
reported that its daily prescription average was 265 and that 
controlled substances comprised 60 percent of the prescriptions; it 
also reported that 35 percent of the prescriptions were for schedule II 
drugs. RX 2G1, at 1. As for Morrison's due diligence procedures, the 
PIC reported that she would call the doctor when a physician was a new 
prescriber, for ``unusual prescriptions,'' and if a patient was ``too 
early.'' Id. The PIC further represented that patients were required to 
provide their driver's license number and that she would refuse to fill 
prescriptions if she suspected a patient was ``doctor shopping,'' was 
``too early,'' was presenting ``forged scripts,'' or was ``visibl[y] 
intoxicat[ed].'' Id. Finally, the PIC stated that if a patient 
presented ``too many scripts,'' she would tell the patient that he/she 
``can only fill one'' and that she would ``[v]oid scripts when the 
doctor authorizes.'' Id.
    Prior to the completion of the due diligence survey, Morrison's 
provided utilization reports but only for the oxycodone products it 
sold. Id. at 130-46. It also provided a list of some 22 pain management 
doctors whose prescriptions it filled, along with the names and 
addresses of their clinics. Id. at 148-49. There is no evidence, 
however, that Respondent's staff conducted any further inquiries into 
the licensure status of these physicians.
    As for the URs, they showed Morrison's dispensings of each 
oxycodone product (by dosage and by NDC code) for the months of 
September and October 2007, as well as for a portion of November. The 
URs did not, however, show Morrison's total dispensings of all 
products.
    With respect to oxycodone 30, the URs showed that during September, 
Morrison's dispensed 1,256 prescriptions totaling 227,801 du, an 
average of 181 du per prescription. RX 2G, at 135-36. As for October, 
the URs showed that Morrison's dispensed 1,466 prescriptions totaling 
262,773 du, an average of 179 du per prescription. Id.
    With respect to oxycodone 15, the URs showed that during September, 
Morrison's dispensed 211 prescriptions totaling 23,814 du, an average 
of 113 du per prescription. Id. at 132-33. As for October, the URs 
showed that Morrison's dispensed 227 prescriptions totaling 24,449 du, 
an average of 108 du per prescription. Id.
    According to a memo in Morrison's due diligence file, on April 1, 
2008, an employee of Respondent requested a re-

[[Page 55469]]

evaluation of Morrison's purchasing limits ``due to a glitch in the 
CSOS system which enabled the pharmacy to order over their [sic] 
limit.'' Id. at 128. Respondent's employee documented that she had 
verified the licenses of both the pharmacy and its PIC; she also 
documented that Morrison's had reported that 40 percent of the 
prescriptions were schedule II drugs and that it was filling 250 rather 
than 265 prescriptions per day. Id.
    As part of the update, Respondent's employee obtained Morrison's 
most recent state inspection reports (which found a single violation in 
that its compounding records were not properly maintained). Id. at 109. 
She also obtained a UR for the period January 1 to April 1, 2008, which 
showed the dispensings of the top 500 drugs (by NDC code). Id. at 115. 
With respect to oxycodone 30, the UR showed that during the period, 
Morrison's had dispensed 1,088 prescriptions totaling 189,947 du, an 
average of 63,316 du per month and 174.6 du per prescription. Id. The 
UR further showed that during the period, Morrison's dispensed 153 
prescriptions totaling 15,547 du of oxycodone 15, an average of 5,149 
du per month and 101 du per prescription.\146\ Id. at 115, 123. 
Oxycodone 30 alone accounted for more than 38 percent of the 
dispensings listed on the report. Moreover, while the UR's ranking did 
not actually list the drugs in decreasing order by the number of units 
dispensed, even a cursory review shows that controlled substances (and 
carisoprodol) comprised nearly all of the top 15 drugs Morrison's 
dispensed.
---------------------------------------------------------------------------

    \146\ While these figures clearly represented a substantial 
decrease in the volume of Morrison's oxycodone dispensings, the 
reason for this became apparent three weeks later during a site 
visit, when Morrison's PIC told Respondent's consultant ``that she 
isn't filling as many CII prescriptions as she used to as many of 
the physicians in her area now dispense themselves.'' RX 2G, at 113-
14.
---------------------------------------------------------------------------

    Notwithstanding the information provided by the UR, a note on the 
bottom of the re-evaluation of limits memo states that Respondent 
approved Morrison's ``for 50k.'' Id. at 128. The note, however, is 
undated.\147\ Id.
---------------------------------------------------------------------------

    \147\ The due diligence file also includes a Schedule Drug Limit 
Increase Request Form, which is dated ``3/31'' and which requested 
an increase in Morrison's solid dose oxycodone ordering limit to 50K 
based on an ``exemption'' Respondent provided for a ``large full 
line pharmacy.'' RX 2G, at 105. The record is otherwise unclear as 
to what criteria were used to determine if a pharmacy was qualified 
as such. A further note on the bottom of this page which is dated 
April 29, 2008, states: ``Leaving at 50k Re-Eval 6 mos. Call & 
informed Jen Seiple sales rep.'' Id.
---------------------------------------------------------------------------

    On April 24, Respondent's consultant made a site visit. Id. at 110-
14. While the consultant verified that Morrison's held a valid state 
license and DEA registration and that its PIC held a state license, he 
also noted that the pharmacy sold a ``very limited'' selection of front 
store items and did not sell medical supplies other than by special 
order. Id. at 110-11. He further noted that the pharmacy had purchased 
drugs from three other distributors, that it filled 200 prescriptions 
on an average day, that 30 percent of the prescriptions were for 
controlled substances, and that 20 percent of the pharmacy's business 
was paid for with cash. Id. at 112. He also noted that Morrison's 
serviced ``1 nursing home'' and one ``inpatient facility'' which was 
identified as St. Joseph; however, the report included no further 
information as to the type of treatment provided at the inpatient 
facility, its size, and the types and quantity of prescriptions that 
were being filled for its patients. Id. So too, the report contained no 
information as to the size of the nursing home, and the types and 
quantity of prescriptions that Morrison's was filling for its patients.
    Next, the consultant noted that the pharmacy filled prescriptions 
for pain management clinics and listed the names of five doctors, their 
locations, and their DEA numbers. Id. at 113. There is, however, no 
evidence that Respondent conducted any further inquiries regarding 
these doctors such as license verifications and whether they had any 
specialty training or board certification in pain management.
    Finally, the consultant provided ``additional comments.'' Id. 
Therein, the consultant wrote:

    The pharmacy is set up [with] only a waiting area in the front--
no front store merchandise. The pharmacy area has a small stock of 
Rx drugs. It seems to be professionally operated. The pharmacist 
indicated that she isn't filling as many CII prescriptions as she 
used to as many of the physicians in her area now dispense 
themselves. The pharmacy services primarily elderly patients.

Id. at 113-14.

    A second ``Schedule [sic] Drug Limit Increase Request Form'' 
establishes that on or about July 28, 2008, Morrison's requested an 
increase in its oxycodone ordering limit to 100,000 du per month. Id. 
at 104. There is, however, no documentation as to whether the request 
was granted.
    On January 30, 2009, Respondent obtained from Morrison's various 
documents including its ``policy and procedure'' for dispensing 
controlled substances to treat pain. Id. at 48-50. It also obtained a 
UR for the period of November 1, 2008 through January 30, 2009, which 
showed the dispensings of 34 schedule II drugs listed by their NDC. Id. 
at 46. With respect to oxycodone 30, the UR showed that Morrison's 
dispensed 1,839 prescriptions totaling 335,114 du, an average of 
111,705 du per month and 182 du per prescription. Id. As for oxycodone 
15, the UR showed that Morrison's dispensed 851 prescriptions totaling 
77,417 du, an average of 25,806 per month and 91 du per prescription. 
Id.
    Thereafter, on February 2, Respondent's account manager sought an 
increase in Morrison's solid dose oxycodone ordering limit, noting that 
its monthly usage was 200,000 du and that it qualified for the increase 
both because it was a ``long-term'' customer and a ``large full-line 
pharmacy.'' Id. at 51. Written on the form is the notation: ``Table 
need usage report.'' Id. However, there is a further notation on the 
request form stating that on a date, the month of which is obscured, 
Morrison's was approved to purchase 200,000 du of oxycodone per 
month.\148\ Id. Respondent did not obtain a new UR until May 6, 2009. 
Id. at 100.
---------------------------------------------------------------------------

    \148\ There are additional documents in this time period 
including the result of a Google search conducted on Morrison's, 
printouts from Morrison's Web site, a printout on Morrison's from a 
Web site known as LegitScript.com, and a Dunn and Bradstreet report. 
RX 2G, at 54-74. While the printout from the LegitScript Web site 
stated that the pharmacy met LegitScript's ``Internet pharmacy 
verification standards,'' id. at 62-63, it did not otherwise address 
whether Morrison's was filling legitimate prescriptions. See id. at 
62 (``LegitScript simply represents that, at the time that 
LegitScript reviewed the Web site, available information indicated 
that the Web site met or did not meet our standards as represented 
on this Web site.'').
---------------------------------------------------------------------------

    Subsequently, on February 17, an employee of Respondent completed a 
due diligence report form on Morrison's. Id. at 3-4. Therein, 
Morrison's reported that it was now filling 180 prescriptions per day. 
Id. at 3. Morrison's further reported that controlled substances 
comprised 30 to 60 percent and schedule II drugs comprised 15 to 30 
percent of the prescriptions it filled. Id.
    The form also included several questions regarding Morrison's 
policies and procedures. Id. at 4. As for how it ensured that 
prescribers were exercising proper standard of care, Morrison's 
asserted that ``[i]f they get a large Qty of CIIs they get a copy of 
[the] MRI and if anything is ever questionable they call the doctor.'' 
Id. Morrison's further asserted that it had refused to fill 
prescriptions because the refill was too soon, the ``script are [sic] 
questionable'' and for an ``extremely lrg. Qty.''
    Morrison's PIC further reported that she had stopped prescriptions 
for ``1 physician that was under investigation.'' Id. Apparently, short 
of an investigation, Morrison's did not permanently stop filling 
prescriptions for any physician

[[Page 55470]]

even though it claimed that it had refused to fill prescriptions 
because the refill was too soon, the ``scripts [we]re questionable,'' 
or were for an extremely large quantity.
    As for whether it filled prescriptions written by out-of-state or 
out-of-area doctors, Respondent's employee noted ``no. She's in South 
Florida; if someone comes from N. Florida she wouldn't or if they came 
from the west coast they wouldn't.'' Id. Unclear is whether this answer 
was referring to the location of the prescriber or the persons 
presenting the prescriptions. Moreover, as for whether the PIC would 
fill prescriptions for out-of state patients, Respondent's employee 
noted that the PIC would fill ``only if they are visiting or on 
vacation.'' Id.
    The final question on the form asked if ``the pharmacy practice[d] 
due diligence on specific prescribers.'' Id. Respondent's employee 
wrote: ``They practice due dilligence [sic] on all prescribers.'' Id. 
No further explanation was provided as to what Morrison's due diligence 
involved.
    Thereafter, during the month of April 2009, Respondent filled 
numerous orders placed by Morrison's for oxycodone products which 
totaled 171,700 du of oxycodone 30; 37,200 du of oxycodone 15; 6,400 du 
of Endocet 10/325; 400 du of Endocet 10/650; 500 du of oxycodone 5/325; 
300 du of oxycodone 80 mg; and 1,300 du of oxycodone 40 mg. GX 10F, at 
22-24. During this month alone, Respondent shipped to Morrison's orders 
totaling 217,800 du of oxycodone.
    On May 6, 2009, Respondent obtained a UR which showed Morrison's 
dispensings during the period of January 1, 2009 to May 6, 2009 but 
covered only the top 100 drugs dispensed. RX 2G, at 101-03. Oxycodone 
30 was the top drug dispensed, with 1,868 prescriptions totaling 
335,895 du, an average of 81,726 du per month \149\ and 180 du per 
prescription. See id. at 101-2 (line entries #s 1 & 80). Moreover, 
oxycodone 15 was the second largest drug dispensed by quantity, with 
882 prescriptions totaling 79,991 du, an average of 19,463 du per month 
and 90.7 du per prescription. Id. at 101. Thus, Respondent's April 
distributions of oxycodone 30 were more than double Morrison's average 
monthly dispensings of the drug, and its April distributions of 
oxycodone was nearly two times (1.9) Morrison's average monthly 
dispensings. Yet there is no evidence that Respondent contacted 
Morrison's and questioned the orders, and Respondent did not report any 
of the orders as suspicious.\150\
---------------------------------------------------------------------------

    \149\ The average was calculated by adding the total days of the 
report through May 5 (125) and dividing it by the average number of 
days in a month in a non-leap year (30.41); the total dispensings 
were then divided by this figure (4.11) to determine the average 
monthly dispensings.
    \150\ As noted repeatedly, Respondent frequently used the URs to 
justify the release of orders, reasoning that if an order was less 
than the amount shown to have been dispensed, it was supported by 
the UR and was ``ok to ship.'' This, however, was not the case with 
Morrison's.
---------------------------------------------------------------------------

    Throughout May 2009, Respondent filled numerous orders totaling 
141,200 du of oxycodone 30; 10,800 du of oxycodone 15; 9,300 of Endocet 
10/325; 1,000 du of Endocet 10/650; 500 du of oxycodone 5/325; 700 du 
of oxycodone 40; and 300 du of oxycodone 80. GX 10F, at 22-25. In 
total, Respondent shipped 163,800 du of oxycodone products to 
Morrison's during the month. Here again, Respondent's shipments of 
oxycodone 30 exceeded Morrison's monthly average dispensings (according 
to the previous UR) by a substantial margin, i.e., more than 59,000 du 
or more than 76 percent. Once again, there is no evidence that 
Respondent contacted Morrison's regarding its oxycodone 30 orders--all 
of which were placed over the course of three days (May 26-28), GX 10F, 
at 22; and questioned the orders. Nor did it report the oxycodone 30 
orders as suspicious.
    In June 2009, Respondent filled orders totaling 81,600 du of 
oxycodone 30; 39,900 du of oxycodone 15; 14,300 du of Endocet 10/325; 
1,000 du of Endocet 10/650; 400 du of oxycodone 80; and 300 du of 
oxycodone 40. GX 10F, at 22-25. While these orders, which totaled 
137,500 du, marked a reduction from the total amount Respondent had 
filled for Morrison's in the previous months, the pharmacy's oxycodone 
15 orders were still more than double the amount of its average monthly 
dispensings of the drug according to the previous UR.
    In July 2009, Respondent filled numerous orders totaling 141,300 du 
of oxycodone 30; 48,000 du of oxycodone 15; 9,100 du of Endocet 10/325; 
1,200 du of Endocet 10/650; 700 du of oxycodone 80; and 200 du of 
oxycodone 40. GX 10F, at 22-25. Morrison's oxycodone orders thus 
totaled 200,500 du. As was the case two months earlier, Morrison's 
orders for oxycodone 30 were 61,000 du (76 percent) greater than its 
average monthly dispensings of the drug per the existing UR, and its 
orders for oxycodone 15 were nearly 2.5 times larger than its average 
monthly dispensings of the drug. Here again, there is no evidence that 
Respondent inquired as to why Morrison's was ordering these quantities. 
Moreover, Respondent failed to file a suspicious order report for any 
of the oxycodone 30 and 15 orders.
    Through the first 17 days of August 2009, Respondent filled orders 
totaling 101,600 du of oxycodone 30; 39,600 oxycodone 15; 4,300 du of 
Endocet 10/325; 900 du of Endocet 10/650; 500 du of Endocet 5/325; 400 
du of oxycodone 80; and 300 du of oxycodone 40. GX 10F, at 22-26. These 
orders totaled 147,600 du.
    In contrast to the orders that were placed between April 1 and July 
31, 2009, there are SOMS notes for these orders, including several 
entries indicating that the orders were reviewed prior to shipping. GX 
23, at 151. Specifically, there is a SOMS note for an order placed on 
August 5, 2009 (on this date 13,200 du of oxycodone 30 and 4,800 du of 
oxycodone 15 were shipped) which lists Ms. Seiple as the decision-maker 
and states: ``ok to ship UR supports order.'' GX 23, at 151.
    Of note, there is no documentation that Ms. Seiple contacted 
Morrison's to obtain an explanation for the order which she then 
independently verified. Moreover, Respondent did not obtain a new UR 
until August 17. RX 2G, at 10-28.
    Likewise, while the SOMS notes indicate that the oxycodone orders 
that Morrison's placed on August 11 and 12 were subject to review, the 
notes indicate that orders were released because they were under the 
current size limit.\151\ GX 23, at 151. Here again, there is no 
evidence that Respondent contacted Morrison's and obtained an 
explanation for the orders. So too, while the SOMS notes indicate that 
the oxycodone orders Morrison's placed on August 13 and 14 were also 
subject to review, the accompanying explanations for why the orders 
were released merely state: ``Ok to ship reviewed by jss'' and ``ok to 
ship per jss.'' Id. Here again, there is no evidence that Respondent

[[Page 55471]]

contacted Morrison's and obtained an explanation for the order or a new 
UR. Yet Respondent's SOMS materials state that ``a [r]eason code and 
notes will also be provided as additional detail supporting the 
decision'' whether to accept or reject an order. RX 78, at 64.
---------------------------------------------------------------------------

    \151\ Of note, Respondent's Policy 6.2, which set forth the 
procedures for the review and disposition of those orders which were 
held by the SOMS, did not distinguish between the various reasons 
why an order was held. Thus, whether an order was held because it 
was of an unusual size, it deviated substantially from a normal 
pattern, or the orders were of unusual frequency, the same procedure 
of calling the customer and obtaining an explanation for the order, 
which was independently verified, followed by requesting a UR, was 
required by its Policy.
    Policy 6.2 was revised on August 14, 2009 though the manner in 
which it was revised is unclear on the record. Even so, it is 
obvious that Morrison's orders were greatly in excess of the amounts 
its most recent UR (which was then three months old) showed were 
being dispensed on a monthly basis. Yet this did not prompt 
Respondent's compliance department to even obtain an explanation for 
the orders, let alone a new UR, before shipping the orders.
---------------------------------------------------------------------------

    As found above, on August 17, a DEA Diversion Investigator 
specifically identified Morrison's as one of Respondent's customers 
whose oxycodone orders were of concern. Tr. 217-18 (testimony of DI); 
id. at 1154-55 (testimony of former employee); GX 48A, at 5; GX 12, at 
23. The same day, Respondent obtained a new UR, which showed Morrison's 
dispensings of some 836 prescription products during July 2009. RX 2G, 
at 10-28. The UR showed that Morrison's had dispensed 1,006 
prescriptions totaling 196,069 du of oxycodone 30, an average of 195 du 
per prescription, and 576 prescriptions totaling 63,658 du of oxycodone 
15, an average of 110.5 du per prescription. Id. at 11. Here too, the 
UR showed that such highly abused drugs as alprazolam 2 mg (more than 
39,700 du), Endocet 10/325, methadone, and carisoprodol were the 
largest drugs dispensed by quantity. Id.
    The next day, Morrison's placed orders for 8,400 du of oxycodone 
30; 1,200 oxycodone 15; 300 Endocet 10/325; and 200 methadone. RX 2G, 
at 9. The same day, Respondent placed Morrison's on compliance hold. GX 
23, at 150. According to an entry in the MFRs, on August 20, 2009, 
Respondent deleted Morrison's August 18 orders and terminated it as a 
controlled substances customer. RX 2G, at 8. However, Respondent did 
not report these four orders as suspicious.
    In her declaration, Ms. Seiple offered the same explanations as to 
why Respondent failed to report Morrison's orders as suspicious as she 
did with the previous pharmacies. For example, she asserted that 
because Morrison's provided a copy of its written policies and 
procedures to prevent diversion, Respondent believed that the pharmacy 
understood its obligation to prevent diversion. RX 103, at 69-70. Next, 
she asserted that because Morrison's PIC explained that the pharmacy's 
``business model included servicing a nearby nursing home and an in-
patient facility, . . . filling prescriptions for a large number of 
elderly patients who lived in a nearby residential area,'' as well as 
``prescriptions for patients of pain management clinics,'' this 
``accounted for the volume of pain medications being dispensed, and the 
percentage of oxycodone dispensed relative to other drugs.'' Id. at 70.
    As before, Respondent did not inquire further into the number of 
residents at the nursing home who were receiving prescriptions for 
oxycodone 30. Nor did it even inquire into the type of treatment being 
provided at the aforesaid ``inpatient facility,'' the number of 
patients, and the number of patients who were receiving oxycodone 
prescriptions. So too, Respondent made no inquiry into the number of 
elderly patients who were receiving oxycodone 30. Thus, these factors 
do not account for the volume of pain medications being dispensed and 
the percentage of oxycodone dispensed relative to other drugs.
    As for the lengthy list of pain management doctors which Morrison's 
PIC provided to Respondent, this may well account for the large volume 
of pain medications being dispensed and the percentage of oxycodone 
dispensed relative to other drugs. However, here again, notwithstanding 
that Morrison's was dispensing more than 250,000 du of oxycodone 30 per 
month, Respondent conducted no further inquiries into the physicians' 
licensure status and whether they had any specialized training or board 
certification in pain management. Moreover, several physicians on this 
list were also customers of Respondent who were terminated at various 
points prior to April 1, 2009. Compare RX 2G, at 148-49, with RX 62, at 
A2-A3 (Drs. Moulton Keane, Martin E. Hale, Joseph M. Ossorio, Gerald J. 
Klein, and Lucien Armand). Thus, the fact that Morrison's provided this 
list does not establish that its dispensings of oxycodone were 
consistent with legitimate medical purposes.
    Next, Ms. Seiple asserted that ``after Morrison's account was 
approved, [the] SOMS systems identified and held any orders for 
controlled substances placed by Morrison's that deviated from its 
typical volume, pattern or frequency'' and that ``[a]ll such orders 
were released only after review by [the] Compliance Department.'' RX 
103, at 70. As found above, Respondent filled numerous oxycodone orders 
from April 1 through July 31, 2009, and on multiple occasions, 
Morrison's monthly orders were far in excess of what the most recent UR 
showed it was dispensing on a monthly basis. These orders clearly were 
not held by the SOMS, because the SOMS was not yet operational. Nor is 
there any evidence that these orders were reviewed. And the orders were 
not reported to DEA even though they deviated substantially in terms of 
their size and were clearly suspicious.
    As for the orders that Morrison's placed during August 2009, there 
are SOMS notes for several of them indicating that the orders were held 
for review. However, the notes show that some of the orders were 
released without the compliance department obtaining an explanation for 
the orders from the pharmacy, and others were released without 
documenting the reason for releasing the order. Of note, in her 
declaration, Ms. Seiple only asserted that the orders were reviewed and 
made no claim that the Compliance Department contacted Morrison's and 
obtained an explanation for the orders, which it then verified. Id.
    Ms. Seiple acknowledged that Respondent continued to sell oxycodone 
to Morrison's until the DIs ``inadvertently revealed during the August 
2009'' meeting that the Agency was investigating the pharmacy and ``the 
account was then placed on non-controlled status.'' Id. at 72. She then 
asserted that Respondent ``did not report a suspicious order placed by 
Morrison's because no order was pending at that time.'' Id.
    However, as found above, the day after Morrison's was identified by 
the DIs (whether as a customer whose orders should be of concern or as 
a target of an investigation), Morrison's placed four orders for nearly 
10,000 du of oxycodone (most of which was for the 30 mg tablets), as 
well as methadone. Yet none of these orders were reported, and while 
Ms. Seiple deleted the orders, this does not refute the fact that 
Morrison's placed the orders and Respondent failed to report them.\152\
---------------------------------------------------------------------------

    \152\ I acknowledge that the ALJ found Ms. Seiple's testimony 
credible and clearly gave it substantial weight. However, much of 
Ms. Seiple's testimony is either amply refuted by the extensive 
documentary evidence of record or is unresponsive to other evidence. 
Accordingly, I decline to give it substantial weight for reasons 
which should be evident by now. See Universal Camera Corp. v. NLRB, 
340 U.S. 474, 496 (1951) (``The findings of the [ALJ] are to be 
considered along with the consistency and inherently probability of 
testimony. The significance of [her] report, of course, depends 
largely on the importance of credibility in the particular case.'').
    For example, in discussing Superior Pharmacy, Ms. Seiple 
asserted that during the June 2008 inspection, its pharmacist 
explained that its business model including filling prescriptions 
for . . . a weight loss and pain management facility located in an 
adjacent office.'' RX 103, at 73 (emphasis added). Yet the 2008 
inspector's report clearly stated that ``[t]he pharmacy is located 
within a space that it shares with Superior Medical Center,'' RX 2F, 
at 70; and the January 11, 2010 inspection report noted that: ``A 
Pain Mgmt doctor in the same place of business,'' as well as that 
the pharmacy was located ``in a strip mall w/a Pain Clinic inside 
the pharmacy.'' Id. at 24. So too, photographs in Superior's due 
diligence file show that the pharmacy and clinic used the same 
waiting area and that the counters for the pharmacy and clinic were 
only feet apart.
    Ms. Seiple further mischaracterized the evidence when she 
asserted that Respondent ``has never cancelled, deleted, or edited 
orders to bring customers within their controlled substance limit . 
. . to make suspicious orders appear non-suspicious, or to otherwise 
thwart review by the Compliance Department.'' RX 103, at 13. 
However, as found above, Respondent repeatedly engaged in these 
practices and Ms. Seiple offered no alternative explanation for why 
Respondent deleted and edited those orders that were held by the 
SOMS, especially those which placed a pharmacy over its CSL.
    Also, with respect to each of the pharmacies, Ms. Seiple 
asserted that ``after [the respective pharmacy's] account was 
approved, the SOMS identified and held any order for controlled 
substances . . . that deviated from its typical volume, pattern or 
frequency.'' See, e.g., id. at 54. However, the SOMS was not even 
operational during the months of April through July 2009, and yet 
Respondent filled numerous oxycodone orders during this period 
placed by each of the pharmacies while failing to report them as 
suspicious.
    The ALJ also gave weight to Ms. Seiple's testimony ``that orders 
held by SOMS for each of the . . . pharmacies in question were not 
shipped until reviewed and approved by the Compliance Committee.'' 
R.D. 172 (other citations omitted). The issue, however, is not 
simply whether the orders were reviewed and approved, but whether 
the compliance department investigated those orders that were held 
by the SOMS, by obtaining an explanation for the order which it then 
verified. Ms. Seiple's testimony is simply unresponsive to the 
evidence which shows that, with respect to nearly every order 
discussed above, Respondent failed to contact the pharmacy and 
obtain an explanation for the order which it then independently 
verified. Also, as found above, the evidence shows that, in several 
instances, oxycodone orders were still shipped, notwithstanding that 
the pharmacy's account had been placed on compliance hold and was to 
be reviewed by the compliance committee.
    Finally, as for Ms. Seiple's testimony that based on its due 
diligence, Respondent determined that the orders placed by each of 
the pharmacies were not suspicious notwithstanding the information 
it had obtained as to the volume of oxycodone and the percentage of 
controlled to non-controlled drugs being dispensed, as explained 
above, I give little weight to her testimony.

---------------------------------------------------------------------------

[[Page 55472]]

Respondent's Other Evidence

    Respondent elicited the testimony of Joanna Shepherd-Bailey, Ph.D., 
who testified as an expert in statistics. Tr. 1576-77. Ms. Shepherd-
Bailey testified that she reviewed Respondent's monthly oxycodone 
shipments to each of its Florida pharmacy customers for the period of 
April 2009 through July 2011 and prepared charts which compare the 
monthly shipments to the seven pharmacies at issue (which are 
represented by red dots) with the monthly shipments to all of Florida 
pharmacy customers (which are represented by blue dots). RX 102, at 7; 
see also RX 69-75. According to Ms. Shepherd-Bailey, the charts show 
that the ``shipments to the DEA-identified pharmacies rarely stand out 
from the rest of the monthly shipments'' and that ``for many of the 
months, shipments to the DEA-identified pharmacies are squarely in the 
mid-range of monthly shipments.'' RX 102, at 7. Ms. Shepherd-Bailey 
also testified that she prepared a Z-score analysis to determine the 
extent to which the monthly shipments to the seven pharmacies were 
atypical when compared to the rest of the shipments. Id. According to 
Ms. Shepherd-Bailey, her analysis ``confirms that most of the monthly 
shipments to the [seven] pharmacies do not stand out as atypical'' and 
that ``fewer than half of the monthly shipments to the [seven] 
pharmacies are statistically significant at the 0.05 significance 
level.'' Id. Ms. Shepherd-Bailey thus concluded that Respondent's 
``shipments to the [seven] pharmacies did not stand out as unusually 
large'' and that ``the shipment volume to [them] would not have 
appeared extraordinary to'' Respondent. Id.
    However, to the extent this evidence was offered to refute the 
allegation that Respondent failed to report suspicious orders, I find 
it unpersuasive for several reasons. First, the analysis ignores the 
significant information obtained by Respondent with respect to each of 
the seven Florida pharmacies. Second, there is no evidence that 
Respondent's compliance department ever conducted a similar analysis 
during the course of its dealings with the pharmacies. Third, in 
determining whether a pharmacy's order was of unusual size, 
Respondent's SOMS did not compare the order with those of other 
pharmacies but compared the order only to the customer's previous 
orders. Fourth, because the analysis was based only on the shipments 
made to Respondent's Florida customers during the acknowledged 
oxycodone epidemic in the State to the exclusion of its shipments to 
customers in other States, I conclude that the analysis suffers from 
selection bias. Finally, even ignoring the selection bias, in some 
instances, the charts show that the shipments to several of the 
pharmacies were among the highest monthly shipments. See RX 71 
(shipments to Englewood); RX 74 (shipments to Morrison's).
    Respondent also submitted for the record copies of numerous 
suspicious order reports it filed with DEA.\153\ See RX 61A-C. However, 
these reports were in the numerical format used to submit them to the 
Agency and Respondent offered no evidence explaining the circumstances 
giving rise to the decision to file the reports. Moreover, as to the 
pharmacies at issue in this proceeding, it is undisputed that 
Respondent filed only a single suspicious order report, that being upon 
its termination of The Drug Shoppe for ordering alprazolam. See GX 40, 
at 14; RX 103A, at 47.
---------------------------------------------------------------------------

    \153\ As discussed previously, in its Exceptions, Respondent 
sought a finding that ``[a]s of August 18, 2009, [it] had detected 
and reported to DEA suspicious orders of controlled substances after 
April 1, 2009.'' Resp. Exceptions, at 18. However, the earliest 
suspicious order reports contained in the Exhibit it submitted are 
dated August 6, 2009. RX 61A, at 1.
---------------------------------------------------------------------------

    Respondent also entered into evidence copies of lists it had 
previously submitted to DEA of those customers it terminated. However, 
a former member of Respondent's compliance department testified that in 
his opinion, ``the customers who were easily suspended or terminated 
from purchasing controlled substances from [it] were not the big money 
accounts.'' GX 52, at 7. (Decl. of Eric Schulze).
    As to whether Respondent acknowledges any misconduct and has 
undertaken any remedial measures, Respondent stipulated that it:

does not accept responsibility for any alleged wrongdoing in this 
matter. Furthermore, any evidence presented by [it] of changes, 
modifications or enhancements [it] made to its internal Policies and 
Procedures in the ordinary course of business, on its own accord, or 
based on alleged guidance or communications from the [DEA] does not 
constitute evidence of remedial measures. This stipulation is 
binding during the administrative hearing before DEA as well as any 
appellate litigation that may occur after a Final Order is issued by 
the Administrator.

ALJ Ex. 8.

Discussion

The Public Interest Analysis

    Section 304(a) of the Controlled Substances Act (CSA) provides that 
``[a] registration . . . to manufacture, distribute, or dispense a 
controlled substance or a list I chemical may be suspended or revoked 
by the Attorney General upon a finding that the registrant . . . has 
committed such acts as would render [its] registration under section 
823 . . . inconsistent with the public interest as determined under 
such section.'' 21 U.S.C. 824(a)(4). With respect to an entity 
registered to distribute controlled substances in schedules I or II, 
Congress directed that the following factors be considered in making 
the public interest determination:

    (1) maintenance of effective controls against diversion of 
particular controlled substances into other than legitimate medical, 
scientific, or industrial channels;
    (2) compliance with applicable State and local law;
    (3) prior conviction record of applicant under Federal or State 
laws relating to the manufacture, distribution, or dispensing of 
such substances;
    (4) past experience in the distribution of controlled 
substances; and
    (5) such other factors as may be relevant to and consistent with 
the public health and safety.

21 U.S.C. 823(b). These factors are considered in the disjunctive. I 
may rely

[[Page 55473]]

on any one or a combination of factors and give each factor the weight 
I deem appropriate in determining whether to revoke a registration or 
to deny a pending application for renewal of a registration. See Green 
Acre Farms, Inc., 72 FR 24,607, 24,608 (2007); ALRA Laboratories, Inc., 
59 FR 50,620, 50,621 (1994). Moreover, I am ``not required to make 
findings as to all of the factors.'' Hoxie v. DEA, 419 F.3d 477, 482 
(6th Cir. 2005); Morall v. DEA, 412 F.3d 165, 173-74 (D.C. Cir. 2005).
    The Government bears the burden of proving that Respondent's 
continued registration would be inconsistent with the public interest. 
21 CFR 1301.44(e). Where, however, the Government establishes a prima 
facie case, the burden shifts to Respondent to show why its continued 
registration would not be inconsistent with the public interest. 
Holiday CVS, L.L.C., d/b/a CVS/Pharmacy Nos. 219 and 5195, 77 FR 
62,315, 62,323 (2012); Southwood Pharmaceuticals, Inc., 72 FR 36,487, 
36,502 (2007).
    In this case, the Government contends that the evidence with 
respect to factors one, four and five establishes that Respondent's 
continued registration would ``be inconsistent with the public 
interest.'' 21 U.S.C. 823(b). The ALJ, however, rejected nearly the 
entirety of the Government's case, including its allegations that 
Respondent repeatedly failed to obtain an explanation for orders that 
were held by the SOMS, and found that the Government has proved only 
that Respondent had failed to report a single suspicious order, that 
being an order placed by Englewood Specialty Pharmacy the day before it 
was terminated as a customer. As noted in the discussion of the 
procedural history, both parties also filed extensive exceptions to the 
ALJ's legal conclusions. To the extent their contentions have not been 
previously addressed, they are discussed below where applicable.

Factors One and Four--Maintenance of Effective Controls Against 
Diversion Into Other Than Legitimate Channels and Past Experience in 
the Distribution of Controlled Substances

    Pursuant to 21 CFR 1301.71(a), ``[a]ll applicants and registrants 
shall provide effective controls and procedures to guard against theft 
and diversion of controlled substances.'' This regulation further 
directs that ``[i]n order to determine whether a registrant has 
provided effective controls against diversion, the Administrator shall 
use the security requirements set forth in Sec. Sec.  1301.72-1301.76 
as standards for the physical security controls and operating 
procedures necessary to prevent diversion.'' 21 CFR 1301.71(a).
    At issue here is Respondent's compliance with the requirements 
pertaining to the detection and reporting of suspicious orders which 
are found at 21 CFR 1301.74(b). This regulation provides:

    The registrant shall design and operate a system to disclose to 
the registrant suspicious orders of controlled substances. The 
registrant shall inform the Field Division Office of the 
Administration in his area of suspicious orders when discovered by 
the registrant. Suspicious orders include orders of unusual size, 
orders deviating substantially from a normal pattern, and orders of 
unusual frequency.

Id. at 1301.74(b).
    The parties dispute the scope of this regulation. More 
specifically, Respondent contends that ``suspicious orders are only 
those [orders] that are of an unusual size, that deviate substantially 
from a normal pattern, or which are of an unusual frequency.'' Resp. 
Exceptions, at 3 n.1. It argues that the regulation's use of the word 
``include'' was intended to limit the scope of the regulation to the 
three enumerated categories. Id. at 24-27. As support for its 
contention, Respondent points to the draft of the regulation as 
published in the 1971 Notice of Proposed Rulemaking, which provided 
that ``suspicious orders may include, but are not limited to'' the 
three categories, and argues that the rule was subsequently amended to 
its present text to provide the industry with ``greater predictability 
and clarity with respect to the security requirements (including the 
definition of `suspicious order' ''). Id. at 28-29. And finally, it 
asserts that the ALJ's reading of the regulation--as simply setting 
forth three non-inclusive examples of what constitutes a suspicious 
order--violates due process by failing to provide fair warning ``of 
what constitutes a suspicious order, or when a report is required of a 
registrant.'' Id. at 30-31.
    I reject Respondent's contentions. As the ALJ recognized, the 
Supreme Court has explained that ``the term `including' is not one of 
all-embracing definition, but connotes simply an illustrative 
application of the general principle.'' Federal Land Bank of St. Paul 
v. Bismarck Lumber Co., 314 U.S. 95, 100 (1941) (citing Phelps Dodge 
Corp. v. NLRB, 313 U.S. 177, 189 (1941)).\154\ See also Dong v. 
Smithsonian Institution, 125 F.3d 877, 880 (D.C. Cir. 1997) (citing 
Federal Land Bank) (``the word `includes' normally does not introduce 
an exhaustive list but merely sets out examples of some `general 
principle' ''). Indeed, ``this interpretation fits with common 
dictionary definitions and examples.'' DIRECTV Inc. v. Budden, 420 F.3d 
521, 527-28 (5th Cir. 2005) (discussing definitions given by The 
American Heritage Dictionary of the English Language (1976) and 
Webster's Third New World Dictionary (1961)). See also Black's Law 
Dictionary 831 (9th ed. 2009) (defining ``include'' as meaning ``[t]o 
contain as a part of something  The participle including 
typically indicates a partial list'').
---------------------------------------------------------------------------

    \154\ Respondent distinguishes Federal Land Bank of St. Paul v. 
Bismarck on the ground that ``in Bismarck there was a `general 
principle' to apply, and the Court interpreted the word `including' 
consistent with that principle.'' Resp. Exceptions, at 25. This 
argument goes nowhere because there is also a ``general principle'' 
to apply here, that being the duty to report suspicious orders.
---------------------------------------------------------------------------

    Nor do I attribute any significance to the alteration of the 
regulation's text between the Notice of Proposed Rulemaking and the 
Final Rule. As Black's explains, ``some drafters use phrases such as 
including without limitation and including but not limited to-- which 
mean the same thing'' as ``including.'' Id. While it is true that the 
Federal Register notice which promulgated the final rule states that 
``[m]any manufacturers and distributors objected to security controls 
set forth in Sec. Sec.  301.92 to 301.97'' and that ``[m]ost of these 
paragraphs have been revised to meet the objections filed,'' 36 FR 
7776, 3776 (1971), these provisions imposed numerous other security 
requirements. Thus, this statement is too general to conclude that the 
drafters of the suspicious order reporting rule intended to depart from 
the common accepted meaning of the term ``include'' and instead set 
forth a limit on the scope of the rule.
    Moreover, limiting the scope of suspicious orders to only those 
orders which are of unusual size, deviate substantially from a normal 
pattern, or are of unusual frequency would have ill-served the CSA's 
purpose of preventing the ``illegal . . . distribution, . . . 
possession and improper use of controlled substances.'' 21 U.S.C. 
801(2). Under Respondent's view, even if it had acquired actual 
knowledge (let alone developed a suspicion) that a customer was 
ordering controlled substances from it for the purpose of diverting 
them, it would have no obligation to report the order as long as the 
order was of a usual size, did not deviate substantially from the 
customer's normal ordering pattern, or was consistent with the usual 
frequency of the customer's orders. But even orders that do not fall 
within the three categories set forth in 21 CFR 1301.74(b) can be 
diverted. Thus, I agree with the ALJ's reasoning ``that a pharmacy's

[[Page 55474]]

business model, dispensing patterns, or other characteristics might 
make an order suspicious, despite the particular order not being of 
unusual size, pattern or frequency.'' R.D. at 154.
    Nor do I find persuasive Respondent's contention that construing 
the regulation as encompassing orders that are suspicious by virtue of 
circumstances other than those of size, pattern, or frequency denies it 
fair warning.\155\ The regulation requires a distributor to report 
suspicious orders, and those who participate in a highly regulated 
industry such as the distribution of prescription controlled substances 
should know that one of the CSA's core purposes is to prevent 
prescription drug abuse and the diversion of drugs to persons who seek 
to abuse them.
---------------------------------------------------------------------------

    \155\ Of note, Respondent's Policy 6.2 states that ``[a]ll 
orders that have been held for review that Masters does not fill for 
the reasons set out in Section III(b)(ii), above, shall be 
considered `Suspicious Orders' according to 21 CFR 1301.74(b) and 
reported to the'' DEA. RX 78, at 33. Among the reasons listed are 
that ``[t]he customer's file, including survey responses and site 
visits, indicates that the customer may be engaged in inappropriate 
business practices, [or] [t]he customer refuses to provide Masters 
with the information necessary to complete its evaluation.'' Id. 
Unexplained by Respondent is why evidence that a customer may be 
engaged in inappropriate business practices becomes relevant to the 
determination of whether an order is suspicious only if that order 
triggers a SOMS hold.
---------------------------------------------------------------------------

    As the Supreme Court explained in United States v. Moore, 423 U.S. 
122 (1975), ``Congress was particularly concerned with the diversion of 
drugs from legitimate channels. It was aware that registrants, who have 
the greatest access to controlled substances and therefore the greatest 
opportunity for diversion, were responsible for a large part of the 
illegal drug traffic.'' Id at 135 (citations omitted). See also 21 CFR 
1306.04(a) (``A prescription for a controlled substance . . . must be 
issued for a legitimate medical purpose by an individual practitioner 
acting in the usual course of his professional practice. The 
responsibility for the proper prescribing and dispensing of controlled 
substances is upon the prescribing practitioner, but a corresponding 
responsibility rests with the pharmacist who fills the 
prescription.''); Gonzales v. Oregon, 546 U.S. 243, 274 (2006) 
(explaining that ``the prescription requirement . . . ensures patients 
use controlled substances under the supervision of a doctor so as to 
prevent addiction and recreational abuse. As a corollary, the provision 
also bars doctors from peddling to patients who crave the drugs for 
those prohibited uses.'').
    Thus, viewed in light of the CSA's purpose of preventing drug abuse 
and diversion, ``a person of ordinary intelligence [has] fair notice of 
what'' the regulation requires. FCC v. Fox Television Stations, Inc., 
132 S.Ct. 2307, 2309 (2012) (quoting United States v. Williams, 553 
U.S. 285, 304 (2008)); see also General Elec. Co. v. EPA, 53 F.3d 1324, 
1329 (D.C. Cir. 1995) (``If, by reviewing the regulations and other 
public statements issued by the agency, a regulated party acting in 
good faith would be able to identify, with `ascertainable certainty,' 
the standards with which the agency expect parties to conform, then the 
agency has fairly notified a petitioner of the agency's 
interpretation.'') (citing Diamond Roofing Co. v. OSHRC, 528 F.2d 645, 
649 (5th Cir. 1976).
    Construing the regulation as requiring the reporting of an order, 
when circumstances other than the order's size, pattern, or frequency 
render the order suspicious, is fully encompassed by the regulation's 
text. Cf. Pennsylvania Dept. of Corrections v. Yeskey, 524 U.S. 206, 
212 (1998) (``[T]he fact that a statute can be applied in situations 
not expressly anticipated by Congress does not demonstrate ambiguity. 
It demonstrates breadth.'') (internal quotations and citations 
omitted). It is also supported by the Agency's public statements, 
including its administrative precedents. See Southwood Pharmaceuticals, 
Inc., 72 FR 36,487 (2007).
    Based in part on the ALJ's conclusion that she was bound by the 
interpretation of 21 CFR 1301.74 given by the Deputy Assistant 
Administrator in his December 2007 letter, R.D. at 154, Respondent 
argues that the various statements contained in ``these letters . . . 
impose substantive and binding requirements on DEA registrants'' and 
therefore cannot be enforced absent their promulgation through notice 
and comment rulemaking.\156\ Resp. Exceptions, at 32; see also id. 
(``Ironically, the ALJ's recognition of the Rannazzisi Letters as 
binding on Masters and on herself--in this and in future cases--cements 
their status as illegally promulgated substantive rules.'').
---------------------------------------------------------------------------

    \156\ It should be noted that the ALJ actually only relied on 
the 2007 letter, and not the earlier letter of September 27, 2006. 
R.D. at 154. The latter set forth multiple examples of 
characteristics present in the ordering patterns of ``pharmacies 
engaged in dispensing controlled substances for other than a 
legitimate medical purpose.'' GX 3, at 3. It also suggested a number 
of questions that a distributor should ask a pharmacy customer in 
``determin[ing] whether a suspicious order is indicative of 
diversion.'' Id. The letter then advised that the questions were 
``not all-inclusive'' and that ``the answer to any of these 
questions'' would not necessarily be determinative of ``whether a 
suspicious order is indicative of diversion.'' Id.
---------------------------------------------------------------------------

    It is true that the ALJ deemed herself to be bound by the position 
taken in the 2007 letter issued by the Deputy Assistant Administrator 
of the Office of Diversion Control. R.D. at 154 (``I am without 
authority to reject a position the Agency has taken on a matter of law. 
This is true even where the Agency's position is announced by means 
other than the formal adjudication process.''). In support of her 
conclusion, the ALJ cited CropLife America v. EPA, 329 F.3d 876 (D.C. 
Cir. 2003), a case involving EPA's decision to cease considering third-
party human studies in evaluating the safety of pesticides, which was 
announced in a letter and press release. In a parenthetical, the ALJ 
set forth her understanding of CropLife as standing for the proposition 
``that an ALJ does not have authority to ignore an Agency position 
announced in a press release.'' R.D. at 154.
    While in CropLife, the D.C. Circuit rejected the EPA's argument 
that its ALJs could nonetheless ``rule on particular third-party human 
studies,'' it noted that the directive ``says no such thing'' and that 
the EPA Administrator's ``statement prohibiting the agency from 
considering such studies'' was ``unequivocal.'' 329 F.3d at 882. 
Indeed, contrary to the ALJ's understanding (in this matter), in 
rejecting the EPA's contention that the position was merely a policy 
statement and not a binding regulation, the D.C. Circuit did not rest 
on the fact that the position was taken in a press release but on the 
agency's intent to ``create[ ] a `` `binding norm' '' that is `` 
`finally determinative of the issues or rights to which it [was] 
addressed.' '' '' 329 F.3d at 881 (quoting Chamber of Commerce v. U.S. 
DOL, 174 F.3d 206, 212 (D.C. Cir. 1999) (quoting Pacific Gas & Elec. 
Co. v. FPC, 506 F.2d 33, 38 (D.C. Cir. 1974))). As the D.C. Circuit 
noted, the press release had stated that ``the [EPA] will not consider 
or rely on any [such] human studies in its regulatory decision 
making.'' Id. (emphasis added). Thus, the court concluded that ``EPA 
has enacted a firm rule with legal consequences that are binding on 
both petitioners and the agency, and petitioners will be afforded no 
additional opportunity to make the arguments to the agency that they 
now present in this petition.'' Id. at 882.\157\
---------------------------------------------------------------------------

    \157\ So too, in rejecting EPA's contention that the press 
release was only a policy statement and thus not subject to judicial 
review, the court examined both ``the effects of the [EPA's] 
action'' and the EPA's ``expressed intentions.'' 329 F.3d at 883 
(citing, inter alia, Cmty. Nutrition Inst. v. Young, 818 F.2d 943, 
946 (D.C. Cir. 1987) and Molycorp., Inc. v. EPA, 197 F.3d 543, 545 
(D.C. Cir. 1999)). The court concluded that ``there is little doubt 
that the directive in the . . . Press Release `binds private parties 
[and] the agency itself with the ``force of law,''' and thus 
constitutes a regulation,'' because it ``clearly establishes a 
substantive rule declaring that third-party human studies are now 
deemed immaterial in EPA regulatory decisionmaking.'' Id. (quoting 
General Elec. Co. v. EPA, 290 F.3d 377, 382 (D.C. Cir. 2002)).

---------------------------------------------------------------------------

[[Page 55475]]

    The ALJ did not analyze whether the Rannazzisi letters were 
intended to, or even could, have binding effect in this proceeding. 
However, a review of the letters shows that they were not intended to 
have binding effect but were simply warning letters.
    The 2007 letter, which primarily discussed the obligation to report 
suspicious orders, also noted that ``registrants that routinely report 
suspicious orders, yet fill these orders without first determining that 
[the] order is not being diverted into other than legitimate medical, 
scientific, and industrial channels, may be failing to maintain 
effective controls against diversion.'' GX 4, at 2 (emphasis added). 
Continuing, the letter stated: ``[f]ailure to maintain effective 
controls against diversion is inconsistent with the public interest as 
that term is used in 21 U.S.C. 823 and 824, and may result in the 
revocation of the registrant's DEA Certificate of Registration.'' Id. 
(emphasis added). Contrary to the ALJ's understanding, this simply is 
not language that manifests an intent to bind the Agency.
    Nor is the 2006 letter fairly read as manifesting an intent to bind 
the Agency. While the letter notes that ``in addition to reporting all 
suspicious orders, a distributor has a statutory responsibility to 
exercise due diligence to avoid filling suspicious orders that might be 
diverted into other than legitimate . . . channels,'' the letter then 
explains that the ``[f]ailure to exercise such due diligence could, as 
circumstances warrant, provide a statutory basis for revocation or 
suspension of a distributor's registration.'' GX 3, at 2 (emphasis 
added).
    Moreover, that an official vested with prosecutorial authority 
issues a letter advising entities that he views certain conduct as 
violative of a regulation or as conduct which is ``inconsistent with 
the public interest,'' does not establish that those entities are 
foreclosed from challenging that interpretation in any subsequent 
proceeding. Indeed, under the Department of Justice's regulations, the 
ultimate authority to determine the meaning of DEA's regulations, as 
well as whether certain conduct is ``inconsistent with the public 
interest,'' is vested in the Office of the Administrator and Deputy 
Administrator. See 28 CFR 0.100(b) & 0.104 (Appendix to Subpart R of 
Part O--Redelegation of Functions); \158\ see also Jeffery J. Becker, 
77 FR 72,387, 72,388-91 (2012) (rejecting Government's interpretation 
of Agency disposal rule); Edmund Chein, 72 FR 6580, 6593 (2007) 
(rejecting Government's interpretation of rule requiring that 
electronic records be readily retrievable). However, while the ALJ 
erred in deeming herself to be bound by the letters, I conclude that 
her error was non-prejudicial.
---------------------------------------------------------------------------

    \158\ While Section 7 of the Appendix authorizes the Deputy 
Assistant Administrator ``to exercise all necessary functions with 
respect to the promulgation and implementation of'' regulations 
related to the Diversion Control Program, it further provides ``that 
final orders in connection with suspension, denial or revocation of 
registration shall be made by the Deputy Administrator of DEA.''
---------------------------------------------------------------------------

    Respondent further argues that the letters do not ``merely restate 
or interpret obligations already present in the regulations,'' but 
rather ``supplement DEA regulations with additional and burdensome 
obligations on registrants'' and ``represent[s] a fundamental change to 
the regulations.'' Resp. Exceptions, at 33 (citing Syncor Int'l. Corp. 
v. Shalala, 127 F.3d 90, 96 (D.C. Cir. 1997) and Paralyzed Veterans of 
Amer. v. DC Arena, 117 F.3d 579, 586 (D.C. Cir. 1997)). Thus, it argues 
that the Agency was required to announce the positions taken in the 
letter by engaging in notice and comment rulemaking. Respondent's 
argument is not well taken.
    At issue in Syncor was the FDA's decision to supersede earlier 
guidelines which ``unequivocally stated that nuclear pharmacists who 
operated an accelerator to produce radioactive drugs to be dispensed 
under a prescription . . . were not required to register under 
[Section] 510 of the Food, Drug, and Cosmetic Act.'' 127 F.3d at 93. 
The earlier guidelines also stated ``that if a nuclear pharmacist was 
not required to register,'' other requirements of the FDCA, ``including 
the new drug provision and compliance with current good manufacturing 
practices, would not apply.'' Id. However, more than ten years later, 
the FDA issued a ``Notice,'' which the Agency alternatively referred to 
in its text as ``guidance'' and as a ``policy statement.'' Id. at 92. 
Therein, the FDA stated that manufacturers of these drugs were required 
to comply with several of the FDCA's provisions, including those 
pertaining to adulteration, misbranding, new drugs, and registration 
listing of all drugs it manufactured. Id.
    The Syncor court rejected the FDA's contention that the Notice was 
merely an interpretive rule, explaining that the Notice ``does not 
purport to construe any language in a relevant statute or regulations; 
it does not interpret anything. Instead, FDA's rule uses wording 
consistent only with the invocation of its general rulemaking authority 
to extend its regulatory reach.'' Id. at 95. The court specifically 
noted the FDA's statement that `` `having considered the available 
information, including that presented to the agency at the hearing and 
in written materials, FDA has concluded that radiopharmaceuticals 
should be regulated under the provisions of the Federal Food, Drug, and 
Cosmetic Act.' '' Id. And the court also noted that in issuing the 
earlier guidelines, FDA had ``made a careful, considered decision not 
to exercise the full extent of its regulatory authority . . . over 
nuclear pharmacies in 1984,'' and that the agency had previously said 
that `` `where the nuclear pharmacy is operating within applicable 
local laws regulating the practice of pharmacy and only prepares and 
dispenses a radioactive drug upon receipt of a ``valid prescription,'' 
the pharmacy exemption [of section 510(g)(1)] clearly applies.' '' Id. 
(quoting FDA, Nuclear Pharmacy Guideline; Criteria for Determining when 
to Register as Drug Establishment (1984)).
    In Syncor, the court further explained that a policy statement 
``merely represents an agency position with respect to how it will 
treat--typically enforce--the governing legal norm. By issuing a policy 
statement, an agency simply lets the public know its current 
enforcement or adjudicatory approach. The agency retains the discretion 
and authority to change its position--even abruptly--in any specific 
case because a change in its policy does not affect the legal norm.'' 
Id. at 94.
    Thus, Syncor provides no support for Respondent. As for its 
contention regarding the scope of what constitutes a suspicious 
order,\159\ no decision of

[[Page 55476]]

this Agency has previously interpreted the rule as being limited to 
only those orders that meet all three criteria. Nor has DEA ever held 
that suspicious orders are limited only to those orders that meet one 
of the criteria set forth. Thus, in contrast to Syncor, this is not a 
matter in which DEA has changed its position to impose a new 
requirement beyond that already required by its regulation.
---------------------------------------------------------------------------

    \159\ The breadth of Respondent's contention is not entirely 
clear. More specifically, it takes issue with the ALJ for 
``reiterat[ing] the conclusion that the regulatory criteria that 
define a suspicious order . . . `are disjunctive and are not all 
inclusive,' '' thus suggesting that it believes that all three 
criteria must be met for any one order to be suspicious. Resp. 
Exceptions, at 33 (quoting R.D. at 154). Yet the plain language of 
the regulation makes clear that these are disjunctive as the word 
``orders'' precedes each of the three criteria.
     While I reject Respondent's contention that it has not received 
fair notice that suspicious orders are not limited to the three 
criteria set forth in the regulation, as explained later, I agree 
with its contention insofar as the Government contends that 
``pursuant to the regulation, it was the responsibility of the 
registrant to review controlled substance orders previously shipped 
to a terminated . . . customer to determine whether those previously 
shipped orders were in fact suspicious.'' Gov. Br. 126.
---------------------------------------------------------------------------

    As for Respondent's reliance on Paralyzed Veterans, that case has 
now been expressly overruled by the Supreme Court on the very 
proposition for which it is cited by Respondent. See Perez v. Mortgage 
Bankers Ass'n, 135 S. Ct. 1199, 1206-07 (2015) (``Because an agency is 
not required to use notice-and-comment procedures to issue an initial 
interpretative rule, it also is not required to use those procedures 
when it amends or repeals that interpretive rule.''). As the Supreme 
Court further recognized in Perez, ``[o]ne would not normally say that 
a court `amends' a statute when it interprets its text. So too can an 
agency `interpret' a regulation without `effectively amend[ing]' the 
underlying source of law.'' Id. As explained above, the suspicious 
order regulation requires the reporting of all suspicious orders; 
notice and comment rulemaking is not necessary to impose liability on 
Respondent where the evidence shows that it failed to report an order 
which was suspicious because of the circumstances surrounding a 
customer's business or dispensing practices.
    Respondent also takes issue with the ALJ's discussion of the 
position taken in the letters that `` ` ``in addition to reporting all 
suspicious orders, a distributor has a statutory responsibility to 
exercise due diligence to avoid filling suspicious orders'' and that 
the duty to report suspicious orders ``is in addition to, and not in 
lieu of, the general requirement under 21 U.S.C. 823(e) that a 
distributor maintain effective controls against diversion.'' ' '' Resp. 
Exceptions, at 33-34 (quoting R.D. at 163 n.94 (quoting GXs 3 and 4)).
    Respondent, however, misstates the ALJ's reasoning. The ALJ 
discussed the letters only after noting that, under the DEA regulations 
and the Agency's decision in Southwood Pharmaceuticals, Inc., ``the 
duty to maintain effective controls against diversion is separate from 
the duty to detect and report suspicious orders,'' and that in 
Southwood, the two duties were analyzed ``separately under factor 
one.'' R.D. at 163 (citing 72 FR at 36,487-98). See also 21 CFR 
1301.71(a) (``All applicants and registrants shall provide effective 
controls and procedures to guard against theft and diversion of 
controlled substances.''). The ALJ further explained that under 
Southwood, ``because registrants have a general duty to maintain 
effective controls against diversion, they may not ignore indicators of 
diversion simply because they come in forms other than suspicious 
orders. Southwood specifically mentions that this general duty to 
prevent diversion includes the duty to perform due diligence.'' R.D. at 
163 (citing 72 FR at 36,500). The ALJ thus explained that ``Respondent 
has an ongoing duty to ensure that the controlled substances it 
distributes are not being diverted by at least performing meaningful 
due diligence on its customers.'' Id. Indeed, it was only in a footnote 
after her discussion of Southwood that the ALJ noted the letters' 
discussion of the due diligence responsibilities that are part of a 
distributor's obligation to maintain effective controls against 
diversion. See id. n.94 (``This interpretation of the interplay between 
the duty to maintain effective controls and the duty to report 
suspicious orders comports with the guidance the Agency gave to 
Respondent in 2006 and 2007.'') (citing GXs 3 and 4).
    Eventually acknowledging that the Agency's due diligence rule was 
announced in an adjudication, thus rendering its arguments regarding 
the effect of the letters irrelevant, Respondent contends that 
``reliance on'' Southwood ``not only as a `basis for this action,' but 
also through the ALJ Recommendation, is in error.'' Resp. Exceptions, 
at 37. This is so, Respondent argues, because ``[t]he decision provided 
little legal precedence'' as ``it relies on [a] 2001 DEA Guidance on 
internet pharmacies, and its opinion turns on the specific facts 
presented to the ALJ.'' Id. Respondent thus contends that ``[i]f the 
DEA, including the ALJ[,] wants to apply Southwood's approach in this 
or future cases, then DEA must amend its binding regulations through 
the processes set forth in the APA.'' Id.\160\
---------------------------------------------------------------------------

    \160\ Respondent then contends that `` `an administrative agency 
may not slip by the notice and comment rule-making requirements 
needed to amend a rule by merely adopting a de facto amendment to 
its regulation through adjudication.' '' Exceptions, at 37 (quoting 
Marseilles Land & Water Co. v. FERC, 345 F.3d 916, 920 (D.C. Cir. 
2003). However, Marseilles Land involved an ambiguous regulation. 
Moreover, DEA has not previously interpreted the regulation as 
limited to only those orders which are of unusual size, deviate 
substantially from a normal pattern, or are of unusual frequency, 
and the interpretation is supported by the regulation's plain 
meaning as well as agency precedent. As the D.C. Circuit has 
recognized, ``[a]lthough the agency must always provide `fair 
notice' of its regulatory interpretations to the regulated public, 
in many cases the agency's pre-enforcement efforts to bring about 
compliance will provide adequate notice.'' General Elec. Co. v. EPA, 
53 F.3d 1324, 1329 (D.C. Cir. 1995).
---------------------------------------------------------------------------

    The Supreme Court, however, long ago rejected the contention that 
an agency must announce all rules it adopts only through notice and 
comment rulemaking. See NLRB v. Bell Aerospace Co., 416 U.S. 267, 290-
95 (1974); SEC v. Chenery Corp., 332 U.S. 194, 199-204 (1947). 
Moreover, because the due diligence rule was announced in an 
adjudication, Respondent was of course, free to argue why the rule 
should not be applied in this matter as it has here. However, the 
reasons offered by Respondent for why Southwood should not be applied 
to its conduct are unpersuasive.
    As for Respondent's contention that Southwood should not be 
followed because, in that case, the Agency relied in part on the 2001 
Guidance Document, Respondent's argument is not entirely clear. 
Apparently, Respondent's argument is that the 2001 Guidance Document 
(which was published in the Federal Register and provided by DEA 
personnel to Southwood during a briefing) had set forth the Agency's 
view as to the potential illegality of dispensing controlled substances 
via the internet because such prescriptions did not arise out of a 
valid doctor-patient relationship.\161\ Thus, the company had fair 
notice that the pharmacies to which it was distributing controlled 
substances were filling unlawful prescriptions. See 72 FR at 36,500-01 
n. 23.
---------------------------------------------------------------------------

    \161\ The existence of a valid doctor-patient relationship is a 
long-standing requirement for establishing that a prescription has 
been issued for a legitimate medical purpose by a practitioner 
acting in the usual course of professional practice. See George 
Mathew, 75 FR 66,138, 66,145-46 (2010) (citing cases).
---------------------------------------------------------------------------

    Yet Southwood also noted that during a conference call conducted by 
a DEA representative with the firm, the DEA representative had 
discussed several Supreme Court decisions including United States v. 
Moore and Direct Sales Co., v. United States, 319 U.S. 703 (1943). 72 
FR at 36,492. Of note, Moore discussed the provisions of both the CSA 
(and its predecessor, the Harrison Narcotic Act, 38 Stat. 785 (1914)) 
that prohibit a physician from dispensing controlled substances other 
than in the course of professional practice. See 21 U.S.C. 841(a)(1); 
21 CFR 1306.04(a). As for Direct Sales, it upheld the conviction of a 
registered manufacturer and wholesaler for conspiracy to violate the

[[Page 55477]]

Harrison Narcotic Act by supplying a physician with morphine ``in such 
quantities, so frequently and over so long a period it must have known 
he could not dispense the amounts received in lawful practice and was 
therefore distributing the drugs illegally.'' 319 U.S. at 705.
    The Southwood decision also noted that the DEA representative had 
discussed with the firm's management the suspicious order reporting 
rule, the requirement under the CSA that prescriptions be issued for a 
legitimate medical purpose in accordance with 21 CFR 1306.04(a), and 
its obligations to maintain effective controls against diversion. 72 FR 
at 36,492. The DEA representative also discussed with the firm's 
management various facts that should be considered in evaluating its 
customers, including the percentages of controlled to non-controlled 
drugs dispensed by the typical retail pharmacy (5 to 20 percent 
controlled versus 80 to 90 percent non-controlled), the typical monthly 
quantity being purchased by brick and mortar pharmacies of the drug at 
issue (hydrocodone), the size and frequency of orders, and the range of 
products ordered by the pharmacy. See id. The decision also noted that 
the DEA representative had specifically identified several of the 
firm's pharmacy customers as engaged in suspicious activity. Id.
    Thus, I am unpersuaded by Respondent's suggestion that Southwood 
should not be followed because it involved an entity engaged in 
distribution to pharmacies that were filling internet prescriptions. 
Resp. Exceptions, at 3. As Southwood makes clear, a distributor's duty 
to perform due diligence on its customers stems from the requirement 
that a registrant ``shall provide effective controls and procedures to 
guard against theft and diversion of controlled substances,'' 21 CFR 
1301.71(a), as well as the registration requirements of section 823, 
which, in the case of a distributor, direct the Agency, in making the 
public interest determination, to consider the ``maintenance of 
effective controls against diversion of particular controlled 
substances into other than legitimate medical . . . channels.'' 21 
U.S.C. 823(b); see also id. Sec.  823(e).
    As for the scope of the duty to perform due diligence, Southwood 
makes clear that doing ``nothing more than verifying a pharmacy's DEA 
registration and state license'' is not enough. 72 FR 36,498. Rather, a 
distributor must conduct a reasonable investigation ``to determine the 
nature of a potential customer's business before it'' sells to the 
customer, and the distributor cannot ignore ``information which 
raise[s] serious doubt as to the legality of [a potential or existing 
customer's] business practices.'' Id. Thus, where, for example, a 
customer provides information regarding its dispensing practices that 
is inconsistent with other information the distributor has obtained 
about or from the customer, or is inconsistent with information about 
pharmacies' dispensing practices generally, the distributor must 
conduct ``additional investigation to determine whether [its customer 
is] filling legitimate prescriptions.'' Id. at 36,500. So too, 
depending upon the circumstances, a distributor may need to perform 
site visits before it engages in any distribution of controlled 
substances. Moreover, the obligation to perform due diligence is 
ongoing throughout the course of a distributor's relationship with its 
customer. See generally id. at 36,498-36,500.
    Accordingly, I reject Respondent's exceptions as set forth in pages 
23-37 of its Exceptions Brief.

Failure To Report Suspicious Orders

    As explained above, I agree with the ALJ that ``a pharmacy's 
business model, dispensing patterns, or other characteristics might 
make an order suspicious, despite the particular order not being of 
unusual size, pattern or frequency. In other words, orders placed by a 
pharmacy which engages in suspicious activity, but places orders of 
regular size, pattern, and frequency, could still be deemed 
suspicious.'' R.D. at 154.
    Notwithstanding her conclusion, the ALJ analyzed only four orders 
placed by the pharmacies on or after April 1, 2009 to determine whether 
they were suspicious, either because the pharmacy's business model, 
dispensing patterns, or other characteristics made the orders 
suspicious, or because the orders were of unusual size, pattern or 
frequency. See generally R.D. at 154-60, 168-70. Rather, her discussion 
focused primarily on the Government's theory that upon terminating a 
customer for compliance reasons, Respondent had an obligation to review 
the customer's prior orders, including those which were shipped, to 
determine if any of them were suspicious, and if so, report them.\162\
---------------------------------------------------------------------------

    \162\ This, however, was not the Government's only theory as to 
why the orders were suspicious. Gov. Br. 118, 121-24.
---------------------------------------------------------------------------

    Noting that the regulation requires the reporting of a suspicious 
order ``when discovered by the registrant,'' the ALJ explained that 
``the term `when discovered' implies a duty to report orders Respondent 
has actually discovered to be suspicious.'' R.D. at 155 (quoting 21 CFR 
1301.74(b)). The ALJ further reasoned that:

    When Respondent releases an order held by SOMS, decides to 
conduct additional due diligence, and then terminates the customer 
based on the findings of the investigation, Respondent has in fact 
``discovered'' a suspicious order. Put another way, if the 
additional due diligence Respondent conducts pursuant to a 
potentially suspicious order held by SOMS fails to justify the 
shipment of that order, then the order is suspicious and must be 
reported. Similarly, if an order causes Respondent to conduct 
additional due diligence and leads Respondent to believe that a 
pharmacy's business model or other characteristics make it likely 
that controlled substances will be diverted, then the order should 
be reported to DEA. This is so because an order is not only 
suspicious by virtue of its internal properties--i.e., being of 
unusual size, pattern, or frequency--but by virtue of the suspicious 
nature of the pharmacy which placed [the order].

Id. at 155-56.
    While I agree with most of the ALJ's analysis, I disagree with two 
aspects of it. First, as to the ALJ's suggestion that only those orders 
which are ``actually discovered'' are subject to reporting, the ALJ 
asserted that ``this does not incentivize registrants to turn a blind 
eye to suspicious activity'' because ``[w]hile a distributor-registrant 
maintains an active account for a customer, the registrant has an 
ongoing duty to conduct meaningful due diligence and to detect 
suspicious orders from that customer.'' Id. at n.88. The ALJ then 
reasoned that ``[t]urning a blind eye will not negate that duty, and 
the Government can prove a violation . . . by showing that a suspicious 
order should have been detected through meaningful due diligence or an 
effective suspicious orders monitoring program.'' Id.
    Yet turning a blind eye is an apt description of the manner in 
which Respondent reviewed the orders placed by the seven Florida 
pharmacies and the information it obtained from them. Moreover, the 
ALJ's discussion of the orders placed by City View shows that were her 
interpretation of the regulation adopted, it would do exactly that, 
i.e., incentivize registrants to turn a blind eye.
    More specifically, the ALJ reasoned that:

    The March 2010 UR showed a significant increase in oxycodone 
dispensing by City View-almost double the amount it dispensed in 
September 2009. Although these concerns were present since at least 
March 2010,

[[Page 55478]]

which was the time period covered by the most recent UR, they were 
not actually discovered by Respondent until its review in December 
2010. Thus, failing to report the December 6 order was not a 
violation simply by virtue of the order's close proximity to the 
termination date.

R.D. at 159.
    The ALJ's reasoning is inconsistent with her previous statement 
that ``[l]imiting the duty to report suspicious orders to orders 
actually discovered does not incentivize registrants to turn a blind 
eye to suspicious activity.'' Id. at n.88. Rather, consistent with the 
ALJ's earlier statement that a violation can be proved ``by showing 
that a suspicious order should have been detected through meaningful 
due diligence or an effective suspicious orders monitoring program,'' 
id., I hold that an order has been discovered to be suspicious and the 
regulation has been violated where the registrant has obtained 
information that an order is suspicious but then chooses to ignore that 
information and fails to report the order. Moreover, a registrant 
cannot ignore information it obtains that raises a suspicion not only 
with respect to a specific order, but also as to the legitimacy of a 
customer's business practices. Nor, in assessing whether a pharmacy's 
orders are suspicious, can it ignore information it has obtained as to 
the scope of drug abuse in a particular area in which it distributes 
controlled substances. Certainly, a registrant cannot claim that it has 
conducted meaningful due diligence or has an effective suspicious 
orders monitoring program when it ignores information it has acquired 
which raises a substantial question as to the legitimacy of a 
customer's dispensing practices.
    The ALJ's reasoning is erroneous for a second reason. In the ALJ's 
view, the standard for reporting an order as suspicious is that due 
diligence must ``lead[ ] Respondent to believe that a pharmacy's 
business model or other characteristics make it likely that controlled 
substances will be diverted.'' R.D. at 155. (emphasis added). I reject 
the ALJ's reasoning because it conflates the standard for whether an 
order can be shipped consistent with the obligation to maintain 
effective controls against diversion with that for whether the order 
must be reported as suspicious.\163\
---------------------------------------------------------------------------

    \163\ It should be noted that while Respondent agreed in the MOA 
to report suspicious orders in a particular manner, the regulation 
requires only that the registrant ``inform the Field Division Office 
. . . in his area.'' 21 CFR 1301.74(b) (emphasis added).
---------------------------------------------------------------------------

    Suspicion as to the existence of a circumstance (i.e., that a 
customer is engaged in diversion) is simply a far lower standard of 
proof than whether it is ``likely'' that the circumstance exists. For 
example, Black's Law Dictionary defines suspicion as ``[t]he 
apprehension or imagination of the existence of something wrong based 
only on inconclusive or slight evidence, or possibly no evidence.'' 
Black's Law Dictionary 1,585 (9th ed. 2009); see also Webster's Third 
New International Dictionary of the English Language 2304 (1976) 
(defining ``suspicious'' as ``arousing or tending to arouse suspicion'' 
and defining ``suspicion'' as ``the act or an instance of suspecting: 
Imagination or apprehension of something wrong . . . without proof or 
on slight evidence''). Moreover, even the concept of ``reasonable 
suspicion,'' see Terry v. Ohio, 392 U.S. 1 (1968), does not require 
proof that it is likely a crime will be committed, but only ``[a] 
particularized and objective basis, supported by specific facts, for 
suspecting a person of criminal activity.'' Black's, at 1,585. 
Accordingly, the regulation's adoption of suspicion as the threshold 
for triggering the requirement that a distributor inform the Agency 
about the order does not even rise to the level of probable cause.
    Thus, while I agree that a distributor's investigation of the order 
(coupled with its previous due diligence efforts) may properly lead it 
to conclude that the order is not suspicious, the investigation must 
dispel all red flags indicative that a customer is engaged in diversion 
to render the order non-suspicious and exempt it from the requirement 
that the distributor ``inform'' the Agency about the order. Put another 
way, if, even after investigating the order, there is any remaining 
basis to suspect that a customer is engaged in diversion, the order 
must be deemed suspicious and the Agency must be informed.
    Noting that Respondent eventually concluded that each of the 
pharmacies were likely diverting controlled substances and terminated 
them as customers, the Government points to the regulation's provision 
which requires that a suspicious order be reported ``when discovered'' 
and argues that ``[t]he regulation makes no distinction between orders 
that are pending or have already been shipped.'' Gov. Proposed Findings 
of Fact and Conclusions of Law, at 126. It further notes the testimony 
of a Diversion Investigator and argues that ``[p]ursuant to the 
regulation, it was the responsibility of the registrant to review 
controlled substance orders previously shipped to a terminated . . . 
customer to determine whether those previously shipped orders were in 
fact suspicious.'' Id. at 126.
    The ALJ rejected the Government's contention, explaining that while 
the regulation's `` `when discovered' provision implies a duty to 
report orders that are actually discovered, it implies no duty to 
review all prior orders placed by a pharmacy terminated for compliance 
reasons.'' R.D. at 156. Continuing, the ALJ reasoned that:

[a] registrant's duty in regards to a certain customer has ended 
when the registrant has made the decision to permanently discontinue 
sales of controlled substances to that customer and has reported to 
DEA all known suspicious orders from that customer. So long as past 
orders were, at the time they were placed and shipped, reasonably 
justified by meaningful due diligence, the registrant has no duty to 
review all such past orders when new information places the 
legitimacy of the customer under question.

Id.
    The ALJ then noted that the ``only guidance'' provided by the 
Agency as to the meaning of the ``when discovered'' provision is that 
found in the 2007 letter. As the ALJ noted, that letter explained that:

[t]he regulation also requires that the registrant inform the local 
DEA Division Office of suspicious orders when discovered by the 
registrant. Filing a monthly report of completed transactions (e.g., 
[an] ``excessive purchase report'' or ``high unit purchases'') does 
not meet the regulatory requirement to report suspicious orders.
    When reporting an order as suspicious, registrants must be clear 
in their communications with DEA that the registrant is actually 
characterizing an order as suspicious. Daily, weekly, or monthly 
reports submitted by a registrant indicating ``excessive purchases'' 
do not comply with the requirement to report suspicious orders, even 
if the registrant calls such reports ``suspicious order reports.''

Id. at 156-57 (quoting GX 4, at 1-2).
    The ALJ thus explained that ``the main purpose of the `when 
discovered' provision is to prevent distributors from simply filing 
`daily, weekly, or monthly' suspicious order reports.'' Id. at 157. The 
ALJ also noted that ``periodic reports delay the reporting of 
suspicious orders that are placed at the beginning of the period, 
meaning that DEA cannot act quickly when necessary,'' and that because 
periodic reports could include multiple orders, these reports ``can 
make it difficult for the Agency to determine why each order was deemed 
suspicious.'' Id.
    I agree with the ALJ that the purpose of the ``when discovered'' 
language is to impose a time period for ``informing'' the Agency about 
a specific suspicious order. The plain language of the regulation 
simply creates no express obligation on a distributor who has 
terminated a customer for engaging in

[[Page 55479]]

suspicious activity to go back through previously shipped orders and 
re-evaluate whether those orders should now be deemed suspicious, and 
if so, inform the Agency.
    Moreover, while an Agency's reasonable interpretation of its own 
regulation is entitled to deference, Martin v. OSHRC, 499 U.S. 149, 150 
(1991) (other citations omitted), the Deputy Assistant Administrator's 
letter suggests that the ``when discovered'' language has an entirely 
different purpose than what the Government now urges for it. But most 
significantly, neither of the letters notified the regulated community 
that upon terminating a customer for engaging in suspicious activity, a 
distributor must then review the customer's previous orders (going back 
to some unspecified date) to determine if they were also suspicious. In 
short, if the Government wishes to impose such a requirement on 
distributors, it must provide pre-enforcement notice of its intent to 
do so. See General Elec. Co. v. EPA, 53 F.3d at 1329-30 (collecting 
cases); see also Gates & Fox Co., v. OSHRC, 790 F.2d 154, 156 (D.C. 
Cir. 1986) (while ``[c]ourts must give deference to an agency's 
interpretation of its own regulations . . . [w]here the imposition of 
penal sanctions is at issue . . . the due process clause prevents that 
deference from validating the application of a regulation that fails to 
give fair warning of the conduct it prohibits or requires''); see also 
Diamond Roofing Co., v. OSHRC, 528 F.2d 645, 649 (5th Cir. 1976).
    Thus, liability can be imposed on Respondent only with respect to 
those orders which, based on the then-existing circumstances, it should 
have determined were suspicious and reported to the Agency. However, 
this matter presents the additional issue of whether Respondent 
violated the suspicious order rule when it failed to notify the Agency 
of numerous orders that were held by the SOMS and which were not 
properly investigated.
    As found above, the SOMS held those orders that were of unusual 
size, unusual pattern, or unusual frequency; thus, where an order was 
held, that order met the specific criteria of a suspicious order as set 
forth in 21 CFR 1301.74(b). Indeed, in the materials it provided to the 
Agency, Respondent specifically represented that ``[t]he purpose of the 
[SOMS] is to ensure that potentially suspicious orders are flagged and 
reviewed by the compliance department.'' RX 78, at 59. As Respondent 
also represented, the SOMS' function was to ``[h]old[ ] all orders for 
controlled drugs that meet or exceed the criteria set out in 21 CFR 
1301.74(b),'' those being ``orders of unusual size, orders deviating 
substantially from a normal pattern, and orders of unusual frequency.'' 
Id. at 32 (emphasis added).
    As found above, Respondent further represented that under its 
Policy 6.2, where an order was held by the SOMS, it would call the 
customer and obtain ``[a]n explanation for the order,'' and that it 
would then ``independently verify any information provided with this 
explanation.'' Id. Respondent also represented that it would request 
``[a] current utilization report, listing all of the pharmaceuticals 
(DEA Schedule and non-schedule) that the pharmacy has dispensed in the 
most recent calendar month.'' Id. The Policy then required that the 
``customer's entire file [be] examined.'' Id.
    Thus, even were I to find that, pursuant to its due diligence 
obligations, Respondent had conducted a meaningful investigation of 
each of the pharmacies, upon receiving an order which met one of the 
aforesaid criteria, Respondent was still required to investigate the 
order and determine that it was not suspicious. Accordingly, where 
Respondent entirely failed to investigate an order by contacting the 
pharmacy and obtaining an explanation for why the order exceeded the 
aforesaid criteria, which it then independently verified, it cannot now 
claim that the order was not suspicious. If it chose not to 
investigate, then it was obligated to report the order.\164\
---------------------------------------------------------------------------

    \164\ While the above discussion is based on the specific 
policies at issue here, it should be clear that while conducting a 
meaningful investigation of a customer is a necessary part of a 
distributor's due diligence obligations, even where the 
investigation provides no reason to question the legitimacy of the 
customer's dispensing practices, upon receipt of an order meeting 
one of the criteria set forth in 21 CFR 1301.74(b), the order must 
either be reported as suspicious or investigated. However, where an 
order is investigated, the investigation must dispel the suspicion 
in order to excuse a distributor from its obligation to report the 
order. Of further note, reporting an order as suspicious does not 
excuse a distributor that seeks to fill that order from its 
obligation to ``to exercise due diligence to avoid filling 
suspicious orders that might be diverted.'' GX 3, at 2. See also GX 
4, at 1 (``Registrants are reminded that their responsibility does 
not end merely with the filing of a suspicious order report. 
Registrants must conduct an independent analysis of suspicious 
orders prior to completing a sale to determine whether the 
controlled substances are likely to be diverted. Reporting an order 
as suspicious will not absolve the registrant of responsibility if 
the registrant knew, or should have known, that the controlled 
substances were being diverted.'').
---------------------------------------------------------------------------

    Applying these principles, I find that the Government has proved by 
a preponderance of the evidence that Respondent repeatedly failed to 
report suspicious orders with respect to each of the seven Florida 
pharmacies. Pertinent to each of the Florida pharmacies, the evidence 
shows that Respondent's senior officials were, at the time of the 
orders at issue here, well aware of the serious problem of diversion 
and drug abuse, and in particular, the diversion and abuse of 
oxycodone, then existing in the State of Florida.
    As found above, both Mr. Corona, Respondent's former Vice-
President, and Mr. Smith, Respondent's owner/CEO, acknowledged in their 
testimony that they were well aware of the oxycodone epidemic then 
occurring in the State of Florida and that oxycodone 30 was a highly 
abused substance which was ``being obtained surreptitiously and 
unlawfully in Florida.'' Tr. 1072. As Mr. Corona testified, Florida's 
oxycodone epidemic was common knowledge at both Respondent and in the 
drug industry in general, with Corona further testifying that Florida 
was ``the `wild west and . . . a free for all' when it came to the sale 
and dispensing of oxycodone.'' GX 51B, at 9 ] 31. Indeed, it was this 
knowledge that prompted Mr. Smith to travel to the State in early 2009 
(before it entered the MOA) and check out the pain clinics, only to 
discover that the pain clinics were advertising in a manner that he 
thought was ``very unethical'' because the ads would show ``young kids 
sitting around a pool in bathing suits with big smiles on their 
faces.'' Tr. 1074.
    This is not to say that Respondent's knowledge of the extensive 
oxycodone problem in the State of Florida was, by itself, enough to 
render suspicious all orders Respondent received from all of its 
Florida customers. It was, however, information that Respondent was 
obligated to consider in evaluating the orders it received from its 
Florida customers. Yet the evidence shows that Respondent's employees 
did not ``consider the geographic locations of its Florida pharmacy 
customers'' in reviewing their orders. I now turn to each of the 
pharmacies.

Tru-Valu

    The evidence shows that prior to April 1, 2009, Respondent had 
acquired substantial information raising a strong suspicion as to the 
legitimacy of Tru-Valu's business practices. Specifically, at various 
points, Respondent obtained information that controlled substances 
comprised an abnormal percentage of its dispensings. On May 28, 2008, 
Respondent's consultant noted that 40 percent of the prescriptions Tru-
Valu filled were for controlled substances and that the PIC 
acknowledged that the pharmacy ``fill[ed] a large number of

[[Page 55480]]

narcotic prescriptions each day'' and had ``pushed for this business 
with many of the area pain doctors.''
    Moreover, just six days earlier, Respondent had obtained a 
utilization report for the month of April 2008, which showed Tru-Valu's 
dispensings of its top 300 drugs. While this apparently was not a 
complete UR, it nonetheless revealed significant information calling 
into question the legitimacy of Tru-Valu's controlled substance 
dispensings.
    More specifically, the UR showed that Tru-Valu's dispensings of 
three highly abused drugs were predominant, with its dispensings of 
oxycodone 30 totaling 132,506 du; its dispensings of methadone 10 
totaling 53,842 du; and its dispensings of alprazolam 2mg totaling 
55,120 du; these three drugs alone constituted 241,000 du out of a 
total of 340,000 du for that month. By contrast, even though 
hydrocodone was the most widely prescribed drug nationally during this 
period, see RX 81, at 47; Tru-Valu's dispensings of this drug did not 
even total 3,000 du, a fraction of the oxycodone.
    Further, in January 2009, Tru-Valu requested an increase in its 
oxycodone purchasing limit, and reported that 50 percent of the 
prescriptions it filled were for controlled drugs and 25 percent were 
for schedule II drugs. Respondent obtained a UR for December 2008, and 
while it showed only the top 200 drugs dispensed, it showed that Tru-
Valu had dispensed more than 192,000 du of oxycodone 30 during the 
month (out of the total dispensings listed on the report of 300,000 
du), an increase of nearly 60,000 du and more than 50 percent from the 
previous UR. The UR also showed that the pharmacy had dispensed 27,628 
du of alprazolam 2 mg and 11,848 du of methadone 10, each of which is a 
highly abused controlled substance.\165\ And the UR showed that with 
the exception of carisoprodol, which was then non-controlled under the 
CSA (but controlled under Florida law and highly sought after by drug 
abusers for use with narcotics and benzodiazepines), each of the top 
ten drugs dispensed was a controlled substance.
---------------------------------------------------------------------------

    \165\ As found above, the UR only listed the top 200 drugs 
dispensed. While the UR likely did not reflect all of the 
dispensings, Respondent could have asked Tru Valu for a complete UR. 
Thus, it cannot now hide behind its failure to do so.
---------------------------------------------------------------------------

    As explained above, in the Southwood decision, which was published 
in the Federal Register, the Agency had noted that the ratio of 
controlled to non-controlled substances dispensed by a typical retail 
pharmacy ranged up to 20 percent for controlled versus 80 to 90 percent 
for non-controlled drugs.\166\ See 72 FR at 36,492. Thus, based on the 
UR alone, as of April 1, 2009, Respondent had substantial information 
which raised a strong suspicion as to the legitimacy of Tru-Valu's 
dispensing practices.
---------------------------------------------------------------------------

    \166\ As noted previously, Southwood was published in the 
Federal Register in 2007, as well as on the Agency's Web site. As a 
participant in a highly regulated industry, Respondent is properly 
charged with knowledge of the contents of the decision, which 
involved an entity registered as a distributor which was charged 
with similar violations. See United States v. Southern Union Co., 
630 F.3d 17, 31 (1st Cir. 2010) (``[T]hose who manage companies in 
highly regulated industries are not unsophisticated . . . . It is 
part of [a company's] business to keep abreast of government 
regulations.''); cf. Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 
384-85 (1947) (``Just as everyone is charged with knowledge of the 
United States Statutes at Large, Congress has provided that the 
appearance of rules and regulations in the Federal Register gives 
legal notice of their contents.'') (citations omitted); California 
v. FERC, 329 F.3d 700, 707 (9th Cir. 2003) (``Publication in the 
Federal Register is legally sufficient notice to all interested or 
affected persons regardless of actual knowledge or hardship 
resulting from ignorance, except those who are legally entitled to 
personal notice.'').
---------------------------------------------------------------------------

    It is of no consequence that the Government did not produce a 
statistical study to show how many standard deviations Tru-Valu's 
dispensing ratio as reflected by the URs was outside that of a typical 
retail pharmacy. As explained above, to conclude that an order is 
suspicious, the information presented to the distributor is not 
required to establish, to a statistical certainty, that a pharmacy was 
likely diverting controlled substances. Rather, the evidence must only 
create a suspicion, a standard which is less than that of probable 
cause. And aside from the volume of Respondent's oxycodone and 
controlled substance dispensings, Respondent also knew that Tru-Valu 
was actively seeking out business from the area's pain doctors, even 
though in early 2009, Respondent's owner/CEO had determined to stop 
selling to pain doctors who were engaged in direct dispensing.
    Throughout this proceeding, Respondent has vigorously argued that 
it is unfair to fault it for failing to analyze the URs to determine 
whether the pharmacies' dispensing ratios were consistent with the 
figures discussed at the August 2009 review (which had also been 
published several years earlier in Southwood) \167\ because the 
Government did not specifically identify this as a deficiency in its 
policies and procedures as part of the Compliance Review.
---------------------------------------------------------------------------

    \167\ The ALJ opined that Southwood ``includes no mention of 
controlled substance ratios as a red flag for diversion.'' R.D. at 
188. However, as explained above, Southwood did discuss the ratio of 
controlled to non-controlled dispensing at a typical retail 
pharmacy. Southwood did not further discuss the ratio as an 
indicator of diversion because there were ample other red flags 
presented by Southwood's customers, including the quantities of 
hydrocodone that the distributor was selling to various internet 
pharmacies and its retail pharmacy customers, as well as evidence 
that the pharmacies were engaged in filling unlawful prescriptions. 
Moreover, in the September 2006 letter, the Deputy Assistant 
Administrator specifically advised distributors (including 
Respondent) that they should be asking their customers ``[w]hat 
percentage of the . . . business does dispensing controlled 
substances constitute?'' GX 3, at 3.
---------------------------------------------------------------------------

    While I have previously rejected Respondent's contention that the 
Government should be estopped from faulting it for failing to use the 
URs for this purpose, as well as the ALJ's discussion that the MOA bars 
sanctioning Respondent for failing to use the URs for this purpose, the 
ALJ also opined that the Government had not proved that Respondent's 
failure to use the URs for this purpose ``rendered [its] anti-diversion 
program ineffective under 21 CFR 1301.71(a).'' R.D. at 190.
    The ALJ explained that ``the parties seem to agree that controlled 
substance ratios are an important aspect that should be investigated 
prior to shipping controlled substances.'' Id. at 188. Noting Ms. 
Seiple's declaration that Respondent ``was aware of the dispensing 
ratio of controlled to non-controlled substances'' of the seven 
pharmacies, id. (citing RX 103, at ]] 158, 177, 204, 225, 244, 284, 
303, 319), the ALJ then noted that ``[r]ather than using URs for every 
customer . . . Respondent used the information reported by site visits, 
phone surveys, and initial due diligence to estimate the ratios.'' Id. 
at 188.
    The ALJ then explained that the issue appears to be ``whether 
Respondent's failure to analyze URs every time an order was held 
violated Respondent duties under DEA regulations.'' Id. at 189. The ALJ 
opined:

    The Government has offered no evidence that accurate information 
regarding controlled substance ratios can only be acquired through 
URs. In fact, the Government's own guidance it provided to 
Respondent specifically instructed Respondent to conduct this 
inquiry via questionnaires. This is precisely what Respondent has 
done. It is contradictory for DEA to instruct Respondent at the 
Compliance Review that it should ask its customers about their 
controlled substance ratios, and now insist that only URs can be the 
basis for such information.
    The fact that Respondent actually analyzed URs on several 
occasions to determine customers' controlled substance ratios is 
evidence that such analysis is helpful. Respondent does not dispute 
that. But the fact that a certain method of gathering and analyzing 
information is helpful does not force the conclusion that the method 
is

[[Page 55481]]

absolutely necessary to provide effective controls against 
diversion. This is especially true when there are other methods of 
gathering necessary information, as is the case here.

Id.
    I agree with the ALJ that using the URs to actually determine a 
customer's controlled to non-controlled dispensing ratio ``is helpful'' 
in assessing whether a pharmacy's dispensing patterns are consistent 
with legitimate pharmacy dispensing practices. Indeed, because the URs 
are compiled from a pharmacy's dispensing records, the URs should 
typically present an accurate report as to the pharmacy's actual 
dispensings.
    By contrast, surveys and questionnaires typically rely on nothing 
more than estimates, and it is certainly within the realm of 
possibility (if not likely) that a pharmacist who was diverting drugs 
would report substantially lower levels of controlled substance 
dispensings than he was actually engaged in; indeed, as discussed 
throughout, this appears to have been the case with respect to several 
of the pharmacies. The distribution of controlled substances is a 
highly regulated industry for good reason. Those who choose to engage 
in the distribution of controlled substances are not free to ignore 
relevant information, and indeed are obligated to make distribution 
decisions based on the most accurate information they have obtained. I 
thus reject the ALJ's reasoning. \168\
---------------------------------------------------------------------------

    \168\ As found above with respect to each of the pharmacies, 
some (but not all) of the survey and site visit forms used by 
Respondent phrased the question in terms of the percentage of 
prescriptions that were for controlled substances (and schedule II 
controlled substances) rather than in terms of the percentage of 
dosage units or ratio of controlled to non-controlled drugs. Of 
further note, the ALJ rejected the testimony of a DI that Respondent 
should have been comparing the pharmacies' statements as to the 
percentage of the prescriptions comprised by controlled substances 
(and schedule II drugs) with the information on the URs to look for 
inconsistencies. Notwithstanding that she ``recognize[d] that 
inconsistencies in information provided by a customer during the due 
diligence process can be a red flag that should at least trigger 
further investigation,'' R.D. at 190 (citing Southwood), she then 
concluded that using the URs ``would not be helpful because it would 
amount to an `apples and oranges' comparison.'' Id. at 191.
    However, while the URs provided by Tru-Valu did not provide data 
as to the number of prescriptions filled for each drug, the ALJ 
ignored that the URs provided by five of the pharmacies (Drug 
Shoppe, Englewood, City View, Medical Plaza, and Morrison's) did 
provide the data and yet Respondent never compared the figures. And 
while making those calculations may have required totaling the 
respective number of prescriptions for schedule II drugs and all 
controlled substances, given the predominance of controlled 
substances in the dispensings, an accurate estimate generally could 
have been made by simply totaling up the controlled substances on 
the first few pages of the URs.
    Most significantly, the ALJ entirely ignored that the URs 
provided by Englewood actually totaled the number of prescriptions 
for each schedule of controlled substances as well as for the non-
controlled prescription drugs, and yet Respondent failed to compare 
the data with what Englewood's pharmacist reported.
    Respondent contends that comparing a pharmacy's representation 
as to the percentages of prescriptions comprised by controlled 
substances and schedule II drugs to the UR data showing the volume 
of dosages is an apples to oranges comparison. This begs the 
question of to what Respondent intended to compare the prescription 
percentages provided by each pharmacy to determine if it was engaged 
in illegitimate dispensing. Of note, in the case of City View, Ms. 
Seiple documented her ``concerns regarding [the number] of doses 
dispensed as opposed to noncontrols'' and that she had spoken with 
the pharmacy ``multiple times regarding ratio of controls [sic] & 
noncontrols [sic].''
    So too, on several occasions, Respondent's inspector submitted a 
site visit report and a recommendation, noting that the dispensing 
percentages reported by a pharmacy were either ``a little high'' or 
``high,'' and recommended that the Compliance Department obtain a 
new UR and compare it with the information obtained during the site 
visit. As found above, these recommendations were not followed. 
According to Ms. Seiple, this was because Respondent's Policies did 
not ``specify any particular percentage of controlled drugs to non-
controlled drugs that the Company considers `high' or `a little 
high.' '' RX 103A, at 45. Ms. Seiple did not, however, address what 
percentage, if any, Respondent considered to be suspicious. This 
suggests that Respondent's purpose in asking the question was to 
create the illusion that it was conducting due diligence.
    Notwithstanding that the dispensing ratio figures provided in 
Southwood and during the August 2009 briefing refer to dosage units, 
generally for most of these pharmacies, the percentage of 
prescriptions for controlled substances would actually be lower than 
the percentage of dispensings when calculated using dosage units, 
due in part, to the large quantities of oxycodone being dispensed 
per prescription. Moreover, in 2008, DEA noted that ``controlled 
substances constitute between 10 percent and 11 percent of all 
prescriptions written in the United States.'' DEA, Electronic 
Prescriptions for Controlled Substances, 73 FR 36722 (2008) (Notice 
of Proposed Rulemaking).
    Thus, while a comparison of the percentages reported by Tru-Valu 
to the 20/80 ratio figure is not a precise comparison, when a 
pharmacist reports that the percentage of the prescriptions 
comprised by controlled substances is well above the 20 percent 
figure, it nonetheless is an indicator (red flag) of diversion. As 
explained above, in May 2008, Tru-Valu told Respondent's consultant 
that controlled substances comprised 40 percent of the prescriptions 
it dispensed (more than double the figure) and in July 2010, Tru-
Valu told Respondent's inspector that 60 percent of the 
prescriptions were for schedule II drugs and that 60 to 80 percent 
of the prescriptions were for all controlled substances.
---------------------------------------------------------------------------

    So too, the ALJ also rejected the Government's contention that 
Respondent ignored large increases in the quantities of oxycodone being 
dispensed, such as the increase in Tru-Valu's oxycodone dispensings 
between the April and December 2008 URs. See R.D. at 191-95. Framing 
the issue as ``whether increases in monthly dispensing volumes are 
indicative of diversion,'' the ALJ noted that ``Southwood does not 
indicate that increases in monthly dispensing volumes could indicate 
diversion or that comparing URs is a necessary method of due 
diligence.'' Id. at 192-93. The ALJ also noted that while the 2006 
letter to distributors addressed various circumstances that may be 
indicative of diversion, it only ``list[ed] `characteristics in 
[illegitimate pharmacies'] pattern[s] of ordering controlled 
substances.' '' Id. at 193 (quoting GX 3, at 3). According to the ALJ, 
the list provided in the letter was ``unhelpful . . . because the 
comparisons . . . do not involve monitoring ordering patterns, but 
dispensing patterns.'' Id. The ALJ then reasoned that because there is 
no evidence ``that DEA told Respondent to compare URs in order to 
identify increases in monthly dispensing volumes,'' it would be unfair 
to sanction Respondent for failing to do so. Id. at 194.\169\
---------------------------------------------------------------------------

    \169\ The ALJ also asserted that ``it appears that the only 
evidence that increases in a pharmacy's monthly sales are indicative 
of diversion was [the DI's] opinion, which was based solely on his 
experience as a diversion investigator. This is not sufficient to 
put the industry on notice of DEA's position that such conduct is 
sanctionable.'' R.D. at 194. The ALJ's reasoning conflates the issue 
of whether an increase in a pharmacy's dispensings of a particular 
drug is an indicator of diversion with that of whether the Agency 
was required to provide notice.
    As for whether the DI's testimony is enough to establish that an 
increase in a pharmacy's dispensing volume of a particular drug is 
an indicator of diversion, at least one federal appeals court has 
held that a diversion investigator with sufficient experience can 
testify as an expert regarding the ``common red flags suggestive of 
an illicit pharmaceutical operation.'' United States v. Lovern, 590 
F.3d 1095, 1102 (10th Cir. 2009). According to the DI's declaration, 
at the time of the hearing, he had ten years of experience as a DI 
and had investigated nine distributors. GX 49B, at 1. Moreover, 
while there may be a legitimate explanation for why a pharmacy has 
experienced an increase in the volume of its controlled substance 
dispensings, it is hardly assailable that a large increase is an 
indicator of diversion, especially when the increase involves a drug 
highly sought after by drug abusers. Indeed, it is within the 
Agency's experience that drug-seeking patients and drug-dealing 
doctors seek out those pharmacies that will fill their prescriptions 
with no questions asked. See East Main Street Pharmacy, 75 FR 
66,149, 66,152 (2010) (discussing relationship between physician 
convicted of drug dealing and pharmacy, pursuant to which physician 
directed all of his patients to fill their prescriptions at the 
pharmacy); see also Holiday CVS, L.L.C., d/b/a CVS/Pharmacy Nos. 219 
and 5195, 77 FR 62,316, 62,321 (2012) (discussing patients 
travelling 200 miles from doctor's office to pharmacy).
---------------------------------------------------------------------------

    It is true that Southwood did not discuss whether an increase in 
the monthly dispensing volume for a particular drug is an indicator of 
diversion. Yet in holding that the distributor's due diligence program 
was ineffective, Southwood did note that in the case of several of the 
pharmacies, ``Respondent actually distributed even

[[Page 55482]]

larger quantities of the drug [hydrocodone] to them'' after it had 
received information that pharmacies were likely engaged in unlawful 
dispensing. 72 FR at 36,500.\170\
---------------------------------------------------------------------------

    \170\ While Southwood did not specifically note the preceding 
months' orders in that portion of the decision which held that the 
distributor had violated the suspicious order rule when it failed to 
report the orders placed by a pharmacy which had ordered 2.1 million 
du in a single month, the opinion had earlier set forth the quantity 
of the distributions made to the pharmacy each month. See 72 FR 
36,489 (listing monthly orders); id. at 36,501 (observing that 
distributor ``did not report any of [pharmacy's] purchases as 
suspicious. . . . It did not do so even in November 2006, when it 
distributed more than 2.1 million dosage units of hydrocone to'' the 
pharmacy).
---------------------------------------------------------------------------

    As for the 2006 letter, it is true that the letter did not 
specifically identify increases in a pharmacy's dispensings of highly 
abused controlled substances as an indicator of diversion. However, the 
letter did not purport to set forth an all-inclusive list of the 
circumstances present with those pharmacies engaged in diversion, and 
some red flags are so obvious that no one who engages in the legitimate 
distribution of controlled substances can reasonably claim ignorance of 
them. See Holiday CVS, L.L.C., d/b/a/CVS/Pharmacy Nos. 219 and 5195, 77 
FR 62,316, 62,322 (2012). This is especially true when the drug is a 
potent narcotic which is known to be highly sought after by drug 
abusers, and even a cursory review of the pharmacy's dispensing data 
would establish that the pharmacy's already high levels of dispensing 
have increased even more.\171\
---------------------------------------------------------------------------

    \171\ Citing Holiday CVS, the ALJ also reasoned that ``DEA has 
recognized that increased sales by a pharmacy, alone, are not 
necessarily indicative of diversion.'' R.D. at 193 (citing 77 FR at 
62,324 n.33). However, the ALJ then acknowledged that ``[t]he 
Administrator stopped short of stating that increased controlled 
substance sales are never a red flag, but emphasized that such 
increases could be `explained by an increase in legitimate 
prescriptions.' '' Id.
    In Holiday CVS, the Government took exception to the ALJ's 
ruling which barred it from admitting evidence of the pharmacy's 
oxycodone purchases. The Administrator upheld the ALJ's ruling, 
noting that the evidence did not establish a violation of the CSA's 
prescription requirement, 21 CFR 1306.04(a), which requires proof by 
reference to a specific prescription that a pharmacist knowingly (or 
with willful blindness) dispensed a prescription which lacked a 
legitimate medical purpose and was issued outside of the usual 
course of professional practice. See 77 FR at 62,324 n.33.
    Here, however, the issue is simply whether the oxycodone orders 
placed by the seven pharmacies were suspicious. Certainly a 
substantial increase in a pharmacy's oxycodone orders is an 
indicator of suspicious activity, notwithstanding that upon 
investigating the orders, the pharmacy may have a legitimate 
explanation for the increase, which ultimately dispels the 
suspicion.
---------------------------------------------------------------------------

    The ALJ further expressed her hesistancy ``to recommend sanctions 
based on a method of due diligence that has never been identified by 
DEA in any regulation, guidance, training, or case.'' R.D. at 194. To 
the extent the ALJ's opinion suggests that DEA has not provided the 
industry with sufficient notice ``that such conduct is sanctionable,'' 
id., as discussed previously, the suspicious order rule provides fair 
notice to distributors as to their obligation to notify the Agency of 
suspicious orders they receive. Due Process does not require the 
Government to identify every conceivable circumstance which may render 
an order suspicious, or to identify every step a distributor must take 
to determine whether a particular order is suspicious. I therefore 
respectfully reject her reasoning.
    I acknowledge that prior to April 1, 2009, Respondent engaged in 
various due diligence efforts, including conducting a site visit and a 
phone survey in response to Tru-Valu's request for an increase in the 
amount of oxycodone. I find, however, that these measures did not 
sufficiently dispel the suspicion created by the other information 
Respondent had obtained from Tru-Valu, particularly the December 2008 
UR data (that being the most recently obtained UR until October 2009). 
That UR showed that Tru-Valu's dispensing of oxycodone 30 alone 
accounted for nearly 64 percent of its dispensings and represented an 
increase of more than 50 percent from the level of its previous UR. 
Thus, Tru-Valu's dispensings of this single dosage (which is also the 
strongest dosage of immediate release oxycodone which is commercially 
available) were more than three times the level of all controlled 
substances dispensed by a typical retail pharmacy.
    The UR also showed that, with the exception of carisoprodol, which 
was then controlled only under Florida law (and which subsequently was 
federally controlled, based in part on its abuse potential when used as 
part of a drug cocktail which included narcotics and 
benzodiazepines),\172\ each of the top ten drugs dispensed was 
controlled under the CSA, including alprazolam 2 mg. These facts alone 
created not merely a suspicion, but a strong one at that, that Tru-Valu 
was diverting controlled substances. Also, the 2008 site visit, which 
was the only time Respondent obtained information as to the names of 
the pain management doctors whose prescriptions were being filled by 
Tru-Valu, revealed that two of them were doctors Respondent terminated 
when its CEO decided to cut off sales to direct dispensers because of 
their unethical marketing practices.
---------------------------------------------------------------------------

    \172\ See Placement of Carisoprodol into Schedule IV, 76 FR 
77,330, 77,338 (2011) (noting that ``the drugs most frequently used 
in combination with carisoprodol that presented in [Emergency 
Department] visits were opioids (hydrocodone, oxycodone), 
benzodiazepines (alprazolam, diazepam, clonazepam), alcohol, and 
illicit drugs (marijuana, cocaine)); see also id. at 77,342-43 
(testimony of various law enforcement officials regarding use of 
carisoprodol in combination with narcotics and benzodiazepines); 
Paul H. Volkman, 73 FR 30,630, 30,637 (2008) (testimony of expert in 
pain management noting that physician's prescribing of drug 
cocktails which included an opioids, a benzodiazepine, and 
carisoprodol ``greatly increased the chance for drug abuse, 
diversion, [and]/or addiction'').
---------------------------------------------------------------------------

    Moreover, at the 2008 visit, the PIC disclosed that he was actively 
seeking out the business of area pain doctors. Unexplained by 
Respondent is why a pharmacist who was actively seeking out the 
business of physicians prescribing narcotics would then risk alienating 
those physicians by refusing to fill their illegitimate prescriptions. 
Yet Respondent simply ignored this potential conflict on the part of 
Tru-Valu's PIC.
    As noted above, from April 1, 2009, through the date of the 
Compliance Review, Respondent filled monthly orders for oxycodone 
products totaling 25,300 du (April), 25,000 du (May), and 24,000 du 
(both June and July). None of the orders were reported to DEA as 
suspicious. For reasons explained previously, I hold that they were 
suspicious.
    Even were I to ignore the existence of these red flags (which I 
decline to do), I further find that even after Respondent implemented 
the SOMS and its new policies and procedures, Respondent continued to 
fail to report suspicious orders. As noted above, on November 30, 2009, 
Tru-Valu placed orders for 7,200 du of oxycodone 30; 14,400 du of 
oxycodone 15; and 1,000 du of oxycodone 10/325, bringing its total 
monthly orders to 26,200 du and exceeding the 25,000 du CSL. Yet there 
is no evidence that the orders were held for review and they were not 
reported as suspicious.
    Moreover, in February 2010, Tru-Valu's orders totaled 46,800 du, 
thus exceeding the CSL by nearly 22,000 du. While Respondent's 
Compliance Department documented that it contacted Tru-Valu and was 
told by its pharmacist that a local supermarket had closed and that he 
was ``getting some of [its] business,'' Respondent failed to comply 
with its Policies and Procedures by independently verifying the 
pharmacist's explanation. It also failed to obtain a new UR as required 
by its Policies and Procedures and did not do so until April 1, 
2010.\173\
---------------------------------------------------------------------------

    \173\ The ALJ rejected the Government's contention that 
Respondent did not follow its policies and procedures by 
independently verifying the pharmacist's explanation, reasoning that 
``by relying solely on the lack of documentation, the Government is 
attempting to improperly shift the burden of proof to Respondent.'' 
R.D. at 173. As explained in my discussion of the Government's 
Exceptions, I respectfully reject the ALJ's reasoning.

---------------------------------------------------------------------------

[[Page 55483]]

    Not only does this evidence support a finding that Respondent 
failed to comply with its Policies and Procedures, it also supports a 
finding that Respondent failed to report suspicious orders. As 
Respondent represented to the Agency, ``[t]he purpose of the [SOMS] is 
to ensure that potentially suspicious orders are flagged and reviewed 
by the compliance department.'' RX 78, at 59. As Respondent further 
represented, the SOMS' function was to ``[h]old all orders for 
controlled drugs that meet or exceed the criteria set out in 21 CFR 
1301.74(b),'' those being ``orders of unusual size, orders deviating 
substantially from a normal pattern, and orders of unusual frequency.'' 
Id. at 32. Thus, where Respondent failed to comply with its policies 
and procedures and obtain an explanation for an order which it 
independently verified, as well as a new UR, those orders are properly 
deemed suspicious. I therefore find that Respondent violated 21 CFR 
1301.74(b) when it failed to report those orders in February 2010 which 
placed Tru-Valu over its CSL.
    The following month, Respondent shipped an even larger quantity of 
oxycodone to Tru-Valu (55,200 du, including 43,200 du of 30 mg and 
12,000 du of 15 mg). Tru-Valu's orders exceeded even the new CSL and 
were again justified on the ground that a supermarket had closed, yet 
Respondent still had not independently verified this explanation. Nor 
did it obtain a new UR until April 1, 2010, after it had filled the 
March orders. Moreover, the evidence shows that on March 31, 2010, 
Respondent deleted an order for oxycodone 15. However, none of these 
orders were reported as suspicious even though Tru-Valu had again 
exceeded the CSL and placed orders of unusual size.
    These episodes provide a further reason to conclude that Respondent 
did not maintain effective controls against diversion. As found above, 
the SOMS calculated a customer's CSL based on ``[t]he highest monthly 
total [invoiced to the customer] from the preceding six months.'' RX 
78, at 60. Thus, if Respondent approved an increase in the quantity of 
a drug family, regardless of whether it had complied with its Policies 
and Procedures by obtaining an explanation for the order, independently 
verifying that explanation, and obtaining a new UR, the increased 
amount would become the new CSL and thus allow the customer to order 
even larger quantities of controlled substances without even triggering 
a SOMS hold and further review.
    Thus, in April 2010, Respondent filled orders totaling 48,000 du. 
While these orders were apparently held for review because they 
violated either the pattern or frequency parameter (as they were the 
first orders placed for the month and placed on the 27th day), 
Respondent deemed the orders non-excessive because they were under the 
previous month's total of 55,200, even though the previous month's 
orders were never properly investigated and justified. I conclude, 
however, that the orders were suspicious because they violated either 
the frequency or pattern parameter and were never properly justified.
    Of further note, several weeks prior to filling the April 27 
orders, Respondent obtained a UR for the month of February 2010. This 
UR showed that Tru-Valu had dispensed more than 192,000 du of oxycodone 
30; 38,563 du of oxycodone 15; and 30,655 du of alprazolam 2 mg; these 
drugs alone accounted for more than 81 percent of Tru-Valu's 
dispensings. The UR also showed that the top ten drugs dispensed were 
formulations of oxycodone, methadone, or alprazolam, and 17 of the top 
20 drugs were controlled. Yet the April 27 orders were not reported as 
suspicious.
    The SOMS notes show that Tru-Valu placed additional oxycodone 
orders in May 2010, which were flagged for review because its orders 
were increasing and there was a change in its buying pattern because 
another distributor had cut back its allocation. While notes in the 
MFRs suggest that Respondent obtained this explanation from the 
pharmacist, there is no evidence that Respondent ever independently 
verified this explanation, as required by its Policies and Procedures.
    According to Respondent's records, on May 18, 2010, Tru-Valu placed 
another order which clearly placed it over its CSL. While Respondent 
deleted the order, it failed to report the order as suspicious. Later, 
it also edited an order for oxycodone 15 (May 27), reducing it from 
12,000 to 7,200 du, while again failing to report it. Indeed, 
Respondent frequently deleted or edited orders to bring a customer 
within its CSL and yet never reported the original orders as 
suspicious.
    However, the suspicious order regulation requires the reporting of 
an order, regardless of whether the order is rejected entirely or 
edited by reducing the amount that is actually shipped. As explained in 
Southwood, the purpose of the regulation is ``to provide investigators 
in the field with information regarding potential illegal activity in 
an expeditious manner.'' 72 FR at 36,501. That purpose was undermined 
by Respondent when it either entirely deleted orders--thus treating 
them as if they had never been placed--or edited the orders by reducing 
their size to place the customer at or below the CSL--thus treating 
them as if they had been placed in smaller amounts than those that 
would trigger reporting. I thus find that Respondent repeatedly 
violated the regulation by failing to report those orders which it 
either deleted entirely or edited downwards in size.\174\
---------------------------------------------------------------------------

    \174\ The Government argued ``that Respondent regularly edited 
and/or deleted held orders in order to keep the particular customer 
within their CSL.'' Gov. Proposed Findings of Fact and Conclusions 
of Law, at 123. Rejecting this contention, the ALJ explained:
    This argument meets the common sense test, but fails to rise to 
the level of proving a violation of a legal requirement. First, the 
Respondent's witnesses affirmatively asserted that their actions to 
edit or delete an order were not linked to the suspicious nature of 
the order itself. Rather, orders were edited and deleted for 
business reasons, not diversion-avoidance reasons. This testimony 
was not contradicted by any other witnesses in this matter. Next, 
the record establishes that due diligence was done upon the order 
prior to making the determination to edit or delete it. Accordingly, 
I find that the Government has failed to prove that the Respondent's 
practice of editing and deleting orders violated [its] duty to 
maintain effective controls against diversion or the duty to detect 
suspicious orders. R.D. at 196.
    I respectfully disagree with the ALJ's reasoning. As for the 
assertion that the compliance department's ``actions to edit or 
delete an order were not linked to the suspicious nature of the 
order itself'' but were done for business reasons, as found above, 
in nearly every instance in which an order was edited or deleted, 
the original order placed the respective pharmacy over its CSL and 
thus rendered the order to be of unusual size. RX 78, at 60. 
Moreover, there are comparatively few instances in which Respondent 
documented that an order was edited or deleted for such reasons as 
that the customer had not purchased enough non-controlled products 
to meet its ``ratio'' or because product was being allocated due to 
a market shortage.
    As for the ALJ's further assertion that ``[t]his testimony was 
not contradicted by any other witnesses,'' R.D. at 196, earlier in 
her decision the ALJ specifically noted the testimony of both Mssrs. 
Corona and Schulze on this issue. Id. at 98. Mr. Corona testified, 
however, that ``[i]t was common practice for [the] Compliance 
Department to either edit or delete orders for controlled substances 
if the order was above the customer's threshold and there was not a 
reason to increase the threshold. Though this was not intentionally 
done to subvert [Respondent's] responsibility to report suspicious 
order [sic], in effect, this practice did just that.'' GX 51B, at 9 
] 30.
    To similar effect, Mr. Schulze testified that ``[i]t was a 
common practice for compliance clerks to reduce orders or delete 
orders to keep a customer within its CSL for the rolling 30 day 
period, as can be seen in the due diligence file Memo For Record 
(`MFR') and SOMS shipping notes.'' GX 53, at 2-3. Mr. Schulze also 
testified that he was ``aware that Ms. Seiple also explicitly stated 
that Masters never cancelled, deleted, or edited orders to bring 
customers within the limits established by SOMS. That statement is 
simply not true.'' Id. at 2. See also GX 52, at 14 (``In the 
beginning of SOMS implementation, we deleted orders that exceeded 
the CSL and informed the customers when they could place another 
order. Later on, when an order was held by SOMS due to size of the 
order exceeding the established limit, we would edit the orders, 
reducing the total amount shipped to keep the customers within the 
CSL.''); id. at 15 (``In practice, we did not analyze a customer's 
orders to determine if they were `suspicious' and as such were 
required to be reported to DEA. We were looking at orders to 
determine what we could justify shipping out. If the order needed to 
be edited to justify shipment, we would do that.'').
    As explained above, because the purpose of the CSL was to 
determine whether a customer's orders were of unusual size and thus 
suspicious, Respondent's practice of editing or deleting those 
orders which placed a customer over its CSL subverted the SOMS. 
Whether Respondent's employees edited or deleted orders with the 
intent to subvert its obligation to report suspicious orders is 
irrelevant because the regulation does not require proof of any 
level of scienter.
    As for the ALJ's statement that ``the record establishes that 
due diligence was done upon the order prior to making the 
determination to edit or delete it,'' R.D. at 196, as found above, 
the evidence shows that while the pharmacies submitted numerous 
oxycodone orders which placed them over their respective CSLs, 
Respondent only rarely contacted the pharmacies and obtained an 
explanation for why they were ordering these quantities.

---------------------------------------------------------------------------

[[Page 55484]]

    Moreover, Respondent failed to report the May 18 and May 27 orders 
as suspicious notwithstanding that: (1) It had shipped 65,200 du of 
oxycodone during the month; (2) it had deleted entirely the May 18 
order; (3) it had reduced the May 27 order; and (4) several days later, 
it noted in the Memo for Records, that the May 27 orders, which 
resulted in the shipment of 24,000 du of oxycodone 30 and 7,2000 du of 
oxycodone 15, had been released without committee review and been 
filled by mistake and that 25,000 du was the level at which Tru-Valu's 
oxycodone orders were to be reviewed.
    Notwithstanding the above, in June 2010, Respondent filled orders 
totaling 33,600 du. While the June 15 order for 12,000 du of oxycodone 
30 placed Respondent over its CSL, the order was released with 
reservation by the committee and not reported as suspicious. Likewise, 
Tru-Valu placed additional orders on June 21 and June 30 which placed 
it over the CSL; while the June 21 order (for 12,000 du of oxycodone 
30) was cancelled by the pharmacist, it still was suspicious and should 
have been reported for the reasons set forth above.
    Although Respondent deleted the June 30 order because it was placed 
too early, even assuming that Respondent contacted the pharmacist 
because the order was apparently re-submitted the next day, there is no 
documentation as to what explanation was offered by Tru-Valu's 
pharmacist. Nor was a new UR obtained. Here again, Respondent violated 
the regulation by failing to report the order as suspicious.
    While based on the June orders Respondent filled, Tru-Valu's CSL 
was increased from the 25,000 du level noted in the June 2nd MFR entry 
to 33,600 du, Tru-Valu's July orders totaled 46,800 du. Yet Respondent 
again failed to obtain an explanation for the order and a new UR. Nor 
did it report the order as suspicious.
    In August 2010, Respondent conducted a site visit. During the 
visit, Respondent developed significant additional information which 
reinforces the conclusion that Tru-Valu was engaged in suspicious 
activity. This included the pharmacy's report that 60 to 80 percent of 
the prescriptions it filled were for controlled substances, and that 60 
percent of the total prescriptions were for schedule II drugs. The 
inspector also reported that while it was the middle of the afternoon, 
the pharmacy was ``very busy'' with a ``long line of mostly younger 
people'' (reporting that there were 10 persons) who were ``thin, 
tattooed, [and] casually dressed'' and that ``more [were] coming in.'' 
The inspector further noted that the pharmacy had posted signs imposing 
a ``pill limit'' of 180 du on oxycodone 30 and 90 du on oxycodone 15; 
that it did not accept insurance on certain oxycodone products; and 
that patients ``must have a recent MRI report.'' All of these were 
indicia of illegitimate activity.
    Ten days after the site visit, Respondent deleted an order, 
documenting that the order was deleted ``per review until [the] review 
completed.'' Yet notwithstanding all of the additional information its 
inspector had documented during the site visit, the order was not 
reported as suspicious. Moreover, on September 1, 2010, Respondent 
filled orders for 24,000 du of oxycodone 30 and 2,400 du of oxycodone 
15. While there is evidence documenting that Respondent's compliance 
department spoke with Tru-Valu's PIC regarding why he did not accept 
insurance on certain oxycodone products, there is no documentation that 
Respondent inquired about the signs imposing pill limits and requiring 
an MRI, or about the clientele observed by the inspector. And here 
again, Respondent failed to report the orders as suspicious.
    Nearly three weeks later, Tru-Valu ordered 26,400 oxycodone 30, 
thus placing it over its CSL. While Respondent edited the order by 
reducing it to 7,200 du, here again, Respondent failed to obtain an 
explanation for the order and a new UR. And here again, it failed to 
report the order as suspicious even though it noted that additional 
product should not be released until ``reservations [were] addressed.''
    Yet the following day, Respondent shipped an additional 13,200 du 
of oxycodone 30 to Tru-Valu. While Respondent contacted the pharmacy 
and asked the PIC if he got a lot of out-of- state customers, it did 
not further inquire as to why he had posted the signs imposing pill 
limits and requiring an MRI. Nor did it question the PIC regarding the 
inspector's observation of the pharmacy's customers.
    Moreover, the same day, Respondent's compliance committee conducted 
an account review, which included reviewing the site visit and its most 
recent UR, which covered the month of July 2010. This UR showed that 
Tru-Valu's dispensings of oxycodone 30 totaled more than 206,000 du, 
which was 61 percent of its total dispensings, and with its dispensings 
of oxycodone 15 of 32,441 du, its dispensings of these two drugs were 
70.7 percent of all dispensings. The UR also showed that Tru-Valu had 
dispensed more than 31,000 du of alprazolam 2 mg and that nine of the 
top ten drugs dispensed were federally controlled substances such as 
oxycodone, methadone, alprazolam 2 mg (the other being carisoprodol). 
In addition, 18 of the top 20 were federally controlled drugs and 
included 11 oxycodone products, three alprazolam products, two diazepam 
products, methadone, and Dilaudid (hydromorphone).
    Notwithstanding the information provided by the UR and the recent 
site visit, Respondent approved the order for 13,200 du and increased 
the amount of oxycodone Tru-Valu could purchase ``to the pattern high 
of 46,800.'' Respondent further documented that the 46,800 du figure 
was only 42 percent of Tru-Valu's UR, in essence using the UR as a one-
way ticket to justify making additional distributions while ignoring 
the significant information it contained which raised a strong 
suspicion as to the illegitimacy of its dispensings. Here again, 
Respondent did not report the order as suspicious.
    Moreover, upon filling an order for 14,400 du of oxycodone 30 on 
October 5, 2010, Respondent had shipped 58,800 du to Tru-Valu on a 
rolling 30-day basis, and exceeded the 46,800 du CSL. Here again, there 
is no evidence that Respondent contacted the pharmacy and yet the order 
was released with

[[Page 55485]]

reservation. Nor was the order reported as suspicious.
    Only eight days later, Respondent edited an order (placed the day 
before) to 6,000 du (60 bottles) to keep Tru-Valu at its CSL. Yet on 
filling the order, Respondent had actually shipped 64,800 du of 
oxycodone on a rolling 30-day basis. Once again, Respondent did not 
contact the pharmacy and obtain an explanation for the order. Here 
again, it failed to report the order as suspicious.
    Moreover, Respondent filled additional orders on November 1, 2010 
(for 24,000 du of oxycodone 30 and 2,400 du of oxycodone 15) as well as 
on November 8, 2010 for 14,400 du of oxycodone 30. While these orders 
apparently were not held by the SOMS, given the extensive red flags 
raised by Tru-Valu's business practices, the orders were suspicious and 
should have been reported. Indeed, the evidence shows that Respondent 
placed Tru-Valu on non-control status only after Respondent received a 
letter from Mallinckrodt raising concerns about Tru-Valu.
    Yet, even before April 1, 2009, Respondent had ample evidence that 
raised a strong suspicion as to the legitimacy of Tru-Valu's business 
practices and this evidence became even stronger over time. While Ms. 
Seiple justified Respondent's failure to report Tru-Valu's orders as 
suspicious on the ground that the pharmacy was actively marketing to 
nearby pain clinics and had provided Respondent with the names of 
several doctors who were writing the prescriptions, it bears noting 
that Respondent had previously cut off sales to two of the physicians. 
It also bears noting that because only a practitioner (i.e., in this 
case, a licensed physician) can issue a prescription, the fact that 
Respondent was provided with the names of several doctors who were 
practicing pain management says nothing about whether those doctors 
were issuing legitimate prescriptions. Moreover, while Respondent's CEO 
and former Vice-President acknowledge that the company was well aware 
of the oxycodone crisis then ongoing in the State of Florida, 
Respondent took no further steps to verify the credentials of the 
physicians (indeed, while it obtained their names at the initial site 
visit, it did not subsequently update this information) and whether 
they had any specialty training in pain management, physical medicine, 
and/or addiction, all of which was readily accessible at the Florida 
Department of Health's Web site.
    Respondent further justifies its failure to report the orders, 
asserting that the orders were consistent with the pharmacy's business 
model as represented by the PIC and confirmed during the May 2008 site 
visit. However, the fact that ``the URs and other information provided 
by Tru-Valu were consistent with the pharmacy's business model as 
explained by [its] PIC and confirmed in the May 2008 site inspection'' 
says nothing about whether the pharmacy was engaged in legitimate 
dispensing.
    As for Ms. Seiple's contention that ``[b]ased on its extensive 
investigation, it determined that the orders it shipped to Tru-Valu 
were not suspicious,'' the fact remains that Respondent repeatedly 
failed to obtain an explanation for those orders that were held by the 
SOMS. And even in those few instances in which it did contact the 
pharmacy, it did not independently verify the pharmacy's explanation 
and it only rarely obtained a new UR.
    As for Respondent's failure to obtain a new UR every time an order 
was held, the ALJ found that the Government had proved the allegation, 
noting that ``very few URs were collected, despite SOMS holding 
hundreds of orders over several years.'' R.D. at 201. However, the ALJ 
then explained that ``the relevant question . . . is not simply whether 
Respondent failed to follow its policies, but whether such failure 
rendered Respondent's system ineffective (factor one) and/or 
constituted negative experience distributing controlled substances so 
as to justify revocation (factor four).'' Id. (citing 21 U.S.C. 
823(e)).\175\
---------------------------------------------------------------------------

    \175\ Because Respondent was distributing schedule II drugs, the 
correct section is 823(b), which uses the same factors as 823(e).
---------------------------------------------------------------------------

    Citing Southwood, the ALJ opined ``that an anti-diversion system is 
ineffective if `the direct and foreseeable consequence of the manner in 
which Respondent conducted its due diligence program was the likely 
diversion of [controlled substances].'' Id. (quoting 72 FR at 36,502). 
The ALJ then explained that in contrast to Southwood, the Government 
had ``made no showing that Respondent's failure to order a recent UR 
for every SOMS-held order would likely result in diversion,'' noting 
that ``the record is void of evidence that any controlled substances 
distributed by Respondent ha[ve] been diverted.'' Id. at 201-02. The 
ALJ further reasoned that ``[t]here is also no evidence that updated 
URs, had they been requested, would have indicated that the drugs were 
likely to be diverted.'' Id. at 202.
    The ALJ then characterized the Government's argument as being that 
``any failure to follow every policy, no matter how minute, renders the 
Policies and Procedures per se ineffective, regardless of whether such 
failure would likely result in [the] diversion of controlled 
substances.'' Id. In the ALJ's view, ``[t]his argument falls short of 
the standard set forth in Southwood that due diligence efforts are 
ineffective when their `direct and foreseeable consequence' '' is the 
`likely diversion of' controlled substances.'' Id. (quoting 72 FR at 
36,500). The ALJ thus concluded that the Government had not proved that 
Respondent's due diligence program was rendered ineffective by its 
failure to obtain a UR every time an order was held by the SOMS. Id.
    While it is true that Southwood noted that the ``direct and 
foreseeable consequence of the manner in which [the distributor] 
conducted its due diligence programs was the likely diversion of'' 
large quantities of controlled substances, this discussion occurred in 
the context of describing the company's conduct in continuing to 
distribute the drugs even after it had obtained information from the 
Agency and some of its customers that the latter were likely filling 
unlawful prescriptions. 72 FR at 36,500; see also id. (noting that ``in 
several cases, Respondent actually distributed even larger quantities 
of [hydrocodone] to'' the pharmacies). Southwood did not, however, 
address whether a distributor's failure to follow its procedures for 
detecting and reporting suspicious orders must be shown to have 
resulted in the likely diversion of controlled substances in order to 
be actionable misconduct.
    Respondent's Policy 6.2 served the purpose of identifying both: (1) 
Those orders which could be shipped notwithstanding that they met the 
criteria of unusual size, unusual pattern, or unusual frequency, 
because the suspicion created by the order itself was sufficiently 
dispelled through the procedures set forth by the policy, and (2) those 
orders which were to be considered as suspicious because the 
information obtained through those procedures did not dispel the 
suspicion. However, as explained above, an order can still be 
suspicious even if the evidence available to the distributor does not 
establish that the order is likely to be diverted. Thus, the Government 
was not required to show that Respondent's failure to follow its policy 
and obtain a UR was likely to result in diversion in order to establish 
liability. It need only show that the failure to follow the policy 
resulted in Respondent's failure to report suspicious orders.
    As explained above, the ALJ characterized as ``minute'' the

[[Page 55486]]

requirement that a new UR be obtained whenever an order was held by the 
SOMS. However, the record is replete with numerous instances in which 
orders held by the SOMS were nonetheless released without any 
investigation, based solely on the fact that the order was supported by 
the UR. Indeed, this occurred even when a new UR had not been obtained 
in months. And it also occurred even after Respondent's inspector 
noted, with respect to several of the pharmacies, that their controlled 
substance dispensing ratios seem high and that a new UR should be 
obtained and compared with the figure reported by the pharmacy.
    To be sure, Respondent may well have ignored any information on 
those URs raising a suspicion of diversion, as it did with the few URs 
that were obtained. But as noted throughout this decision, the URs it 
did obtain contained significant information that raised a strong 
suspicion that the each of the pharmacies was engaged in illegitimate 
dispensing practices. I therefore also hold that Respondent's repeated 
failure to obtain a new UR whenever orders were held by the SOMS 
rendered its system for detecting suspicious orders ineffective.\176\
---------------------------------------------------------------------------

    \176\ Where, in a given month, multiple orders were held, it 
would have sufficed if Respondent had obtained a new UR following 
the first held order, as it said it would. If that were the case, I 
would not find liability for failing to obtain additional URs.
---------------------------------------------------------------------------

The Drug Shoppe

    Prior to April 1, 2009, Respondent had acquired information raising 
a strong suspicion as to the legitimacy of The Drug Shoppe's dispensing 
practices. While The Drug Shoppe was a community pharmacy, it had 
previously reported that 40 percent of the prescriptions it filled were 
for controlled substances and 20 percent of the prescriptions were for 
schedule II drugs.
    Moreover, the first UR obtained by Respondent showed that The Drug 
Shoppe's monthly dispensings of oxycodone 30 totaled 38,689 du and its 
dispensings of all oxycodone products totaled 56,600 du out of total 
dispensings of 165,068, or more than 34 percent of the pharmacy's 
dispensings. While The Drug Shoppe's PIC had stated that he had refused 
to fill prescriptions when the quantity was ``too high,'' the UR 
previously obtained showed that the average quantity of oxycodone 30 
dispensed per prescription was 214 du.
    Also, while during a site visit, the pharmacy reported that it 
filled for various pain management physicians and provided the names of 
five of the physicians, there is no evidence that Respondent even 
verified that the physicians were licensed and registered. Nor did it 
verify whether these physicians had specialty training or board 
certification in pain management or another related specialty.
    According to Respondent's records, as of April 1, 2009, The Drug 
Shoppe's monthly purchasing limit was set at 50,000 du for all 
oxycodone products. Yet Respondent allowed The Drug Shoppe to exceed 
the purchasing limit by more than 5,000 du in April 2009.
    In the middle of July 2009, Respondent obtained a new UR which 
covered the period of May 14 through July 14. Of note, the UR showed 
that The Drug Shoppe's monthly dispensings of oxycodone 30 had 
increased to nearly 53,000 du. Yet Respondent did not find this 
suspicious, and approved an increase from 50,000 to 62,000 du on The 
Drug Shoppe's oxycodone purchasing limit and filled orders totaling 
that amount during July.
    Thereafter, the SOMS went into effect. However, even as early as 
the first month that the SOMS was operational, Respondent filled 
orders, which were held for review because they exceeded The Drug 
Shoppe's oxycodone CSL, without obtaining an explanation for the orders 
and a new UR while failing to report the orders as suspicious. For 
example, on August 13, 2009, Respondent filled an order for 1,000 
Endocet which placed The Drug Shoppe over its CSL. While the SOMS was 
supposed to hold an order even if it resulted from a pharmacy's orders 
exceeding the CSL by a single dosage unit, the order was approved 
because it was ``ok to ship within current limit.'' As previously 
explained, if Respondent had actually contacted the pharmacy, one would 
expect the explanation it obtained from it to have been documented in 
the SOMS notes, rather than that the order was ``ok to ship within 
current limit.'' I therefore conclude that Respondent did not contact 
the pharmacy and obtain an explanation for the order, and that the 
order, which was not reported, was suspicious.
    Further, only days later during the Compliance Review, a DEA 
Investigator specifically identified Respondent's distributions of 
oxycodone to The Drug Shoppe as ``potentially problematic.'' GX 48A, at 
3, 5; GX 12, at 23. This information obviously had no impact on 
Respondent's evaluation of the oxycodone orders thereafter placed by 
The Drug Shoppe.
    One week later, Respondent deleted an order because it placed The 
Drug Shoppe over its current limit. Yet Respondent did not report the 
order as suspicious. Moreover, the next day, Respondent filled an order 
for 19,500 du of oxycodone 30, bringing The Drug Shoppe's orders to 
74,000 du of oxycodone products, with 72,500 du being for 30 mg 
tablets. While Respondent justified filling the order, documenting that 
there was a ``Large # RX's For HIV Disease State,'' there is no 
evidence that it independently verified that The Drug Shoppe was 
filling a large number of prescriptions for HIV patients as well as 
whether HIV patients would necessarily require oxycodone 30. Here 
again, while the order placed The Drug Shoppe over its CSL by 12,000 
du, it was not reported as suspicious.
    As noted in my findings, throughout the course of its relationship 
with The Drug Shoppe, the pharmacy repeatedly placed orders which, on a 
rolling 30-day basis, resulted in the pharmacy exceeding its oxycodone 
CSL by a large amount. Invariably, Respondent failed to contact the 
pharmacy and obtain an explanation for the order and it rarely obtained 
a new UR. Instead, it typically justified shipping the order, noting 
that the order was under the current size limit, even when the order 
placed The Drug Shoppe over its CSL by tens of thousands of dosage 
units. And it never reported any of the orders as suspicious.
    Moreover, during November 2009, Respondent purportedly reduced The 
Drug Shoppe's oxycodone CSL to 46,500 du, yet Respondent continued to 
fill orders which placed The Drug Shoppe over the CSL, while also 
failing to contact the pharmacy and obtain an explanation for the 
orders and a new UR. And it failed to report the orders as suspicious.
    Likewise on December 23, 2009, Respondent deleted an order for 
15,500 du of oxycodone 30 because the pharmacy was already at the CSL. 
While Respondent contacted the pharmacy and was told that its sales 
representative had said that it was allotted 62,000 du, Respondent did 
not obtain a new UR. Moreover, the next day, Respondent shipped 13,500 
du of oxycodone 30, thus bringing its shipments since December 3, 2009 
to 60,000 du (of which 58,600 were for oxycodone 30). Respondent's 
records contain no explanation as to why it ignored that The Drug 
Shoppe was nearly 14,000 du over its CSL and it did not obtain a new 
UR. Nor did it report the order as suspicious.
    As found above, throughout January 2010, Respondent filled orders 
that placed Respondent above the 46,500 du

[[Page 55487]]

CSL on nine occasions, and on several occasions, the orders even placed 
it above the previous CSL of 62,000. Respondent generally justified 
shipping the orders, reasoning that the amount ordered during the 
calendar month was under the CSL, notwithstanding that the 
determination of whether the orders exceeded the CSL was supposed to be 
calculated on a rolling 30-day basis. Here again, while the SOMS notes 
typically contained this explanation, Respondent did not document that 
it obtained an explanation for the order from the pharmacy and a new 
UR. I conclude that the orders were suspicious and should have been 
reported but were not.
    Moreover, in the middle of January, Respondent conducted a site 
visit. On the report, the inspector noted in multiple places that The 
Drug Shoppe's dispensing ratio of 40 percent was ``a little high.'' He 
recommended that Respondent obtain a new UR and compare it with the 
site visit. Respondent did not, however, obtain a new UR for another 
five months. Nor did it follow its inspector's recommendation to 
compare the pharmacy's representation of its dispensing ratio with even 
the previous UR.
    On January 25, 2010, The Drug Shoppe's CSL was raised to 60,000 du. 
Only four days later, Respondent filled more oxycodone orders, 
notwithstanding that they placed the pharmacy at 15,000 du over the new 
CSL. According to various notes, Respondent's Compliance Committee 
approved the increase because the order was supported by the ``ur plus 
10%'' ``per company policy.'' Here again, Respondent treated the UR as 
a one-way ticket to justify increasing the amount it could ship, while 
ignoring that the UR was incomplete because it did not list The Drug 
Shoppe's total dispensings, as well as the significant information it 
contained.
    As found above, on multiple occasions thereafter through June 15, 
2010, Respondent filled The Drug Shoppe's oxycodone orders 
notwithstanding that the orders placed it over its CSL (and on some 
occasions because the orders were of unusual frequency). Here again, 
Respondent released the orders on the basis of one of three reasons: 
(1) That the order was under the CSL, (2) that the order was supported 
by the UR, or (3) that the frequency was not excessive, even though the 
SOMS had apparently flagged some of the orders for this reason as well. 
However, with the exception of an order placed on May 7, 2010, which 
was apparently held by the SOMS because The Drug Shoppe had placed four 
orders each for 9,600 du between May 3 and 7 and thus were of an 
unusual pattern, Respondent failed to obtain an explanation for any of 
these orders from the pharmacy and a new UR.\177\ Nor did it report any 
of the orders as suspicious.
---------------------------------------------------------------------------

    \177\ However, while Respondent contact The Drug Shoppe at the 
time of the May 7 order, it did not obtain a new UR.
---------------------------------------------------------------------------

    On June 15, 2010, Respondent edited an oxycodone 30 order from 
9,600 du to 5,400 du. Nonetheless, this resulted in The Drug Shoppe's 
orders totaling 67,600 du and placing it over its CSL. While Respondent 
finally obtained a new UR, there is no evidence that Respondent 
actually obtained an explanation for the order. Nor did it report the 
order as suspicious.
    Still later on June 25, Respondent filled an order for 6,000 du of 
oxycodone 30. Yet it documented in the SOMS notes that ``oxy edited to 
zero per csl and policy.'' Respondent offered no evidence to explain 
the inconsistency and did not report the order as suspicious. And 
several days later, The Drug Shoppe placed a further order for 3,600 du 
of oxycodone which was held by the SOMS. While Respondent deleted the 
order, noting that it could be placed after June 30, it did not 
investigate the order and did not report the order as suspicious.
    According to the SOMS note dated July 19, 2010, The Drug Shoppe's 
oxycodone CSL was then at 42,420 du. Yet on this date, Respondent 
filled an order for 9,600 du of oxycodone 30, thus placing the total of 
filled orders at 46,800 du on a rolling 30-day basis and over the CSL. 
Of note, while the order was held by the SOMS, Respondent did not 
contact the pharmacist and obtain an explanation for the order. Nor did 
it obtain a new UR. And it did not report the order as suspicious.
    Moreover, one week later, Respondent edited an order to 1,600 du 
``to meet the CSL for July.'' Notwithstanding that the order (and not 
simply the filled amount) placed The Drug Shoppe over its CSL, there is 
no evidence that Respondent contacted the pharmacy and obtained an 
explanation for the order. Nor did it obtain a new UR. It did not 
report the order as suspicious. And the deleted amount was treated as 
if it had never been ordered.
    As found above, on multiple occasions throughout August, Respondent 
filled The Drug Shoppe's orders notwithstanding that the orders 
exceeded the CSL referred to in the July 19 SOMS note on a rolling 30-
day basis. Here again, while the orders were held by the SOMS, several 
of them were approved because Respondent counted them on a calendar 
month basis and deemed the size not excessive, thus changing its own 
rule. Respondent did not contact the pharmacy and obtain an explanation 
for the orders or a new UR. And later on August 24, 2010, Respondent 
filled an order, notwithstanding that the order placed The Drug Shoppe 
over the CSL, documenting the reason as ``RWR'' (release with 
reservation). Yet Respondent's Policy 6.2 contained no provision that 
allowed for the release of an order on this basis.\178\ RX 78, at 32. 
Respondent did not obtain an explanation from the pharmacy for any of 
these orders, it did not obtain a new UR, and it failed to report any 
of the orders as suspicious.
---------------------------------------------------------------------------

    \178\ The ALJ rejected the Government's contention that 
Respondent's compliance department used the notation of ``release 
with reservation'' or ``RWR'' to document its objection to the 
release of a held order. R.D. at 168-69. The ALJ rejected the 
contention, reasoning that ``Ms. Seiple credibly explained that RWR 
was actually used to identify orders that were not suspicious, but 
about which Respondent desired to collect more information.'' Id.
    I conclude, however, that it is not necessary to determine what 
the purpose was of these notations, because in those instances in 
which orders were held by the SOMS, the orders already met the 
criteria of a suspicious order. Accordingly, even if Respondent used 
the notations because it ``desired to collect more information'' 
about the customer, id., the order was still suspicious and subject 
to reporting.
---------------------------------------------------------------------------

    On each date in September 2010 on which it filled The Drug Shoppe's 
oxycodone orders, the pharmacy exceeded the CSL. The explanations 
offered for releasing the orders included: (1) That the orders were 
``within [the] monthly buying pattern'' even though the orders exceeded 
the CSL (Sept. 1 and 2 orders); (2) the orders were ``under csl [and] 
supported by ur'' or ``rwr under csl'' even when the orders placed the 
pharmacy more than 9,000 du over its csl (Sept. 7), or nearly 8,000 du 
over (Sept. 20); or (3) merely ``rwr'' even when the orders placed the 
pharmacy over the CSL by nearly 10,000 du (Sept. 13) and 13,000 du 
(Sept. 23). Of note, Respondent did not document that it had contacted 
the pharmacy and obtained an explanation for any of the orders and I 
find that it did not do so. Respondent also did not obtain a new UR. 
And it failed to report any of the orders as suspicious.
    October 2010 brought more of the same, with The Drug Shoppe's 
orders exceeding the CSL on four occasions and Respondent filling the 
orders, typically justifying its doing so by counting the orders on a 
calendar-month basis. However, here again,

[[Page 55488]]

Respondent failed to contact the pharmacy and obtain an explanation for 
the order and a new UR. And it failed to report the orders as 
suspicious.
    While November 2010 brought a substantial decrease in the volume of 
oxycodone Respondent shipped to The Drug Shoppe, both the November 1 
and November 9 orders placed the pharmacy over its CSL on a rolling 30-
day basis, with the first order placing The Drug Shoppe nearly 8,700 du 
over its CSL. The order was released, notwithstanding that Respondent 
failed to obtain an explanation for the order from the pharmacy and a 
new UR. Again, it failed to report the order as suspicious. Nor did 
Respondent obtain an explanation for the November 9 order and a new UR. 
And it did not report the order as suspicious.
    On November 18, Respondent conducted a site visit during which its 
inspector was told that 40 percent of the prescriptions were for 
controlled drugs and ten percent were for schedule II drugs. The 
inspector was also told that 85 percent of the controlled substance 
prescriptions it filled were paid for with cash. Both of these were 
additional indicia that the pharmacy was engaged in in suspicious 
dispensing practices. See GX 51, at 4 ] 12 (declaration of Wayne 
Corona).
    Moreover, while Respondent obtained a new UR on December 15, 2010, 
(for the month of October), that UR showed that Respondent's 
dispensings of oxycodone 30 alone (49,637 du) comprised 27 percent of 
all drugs dispensed, and its dispensings of all oxycodone products 
totaled 57,601 du, or more than 31 percent of all drugs dispensed. Yet 
even after acquiring this additional information, Respondent continued 
to ship oxycodone to The Drug Shoppe through February 8, 2011, the date 
on which DEA Investigators went to Respondent's Kemper Springs facility 
and requested its file on The Drug Shoppe. Respondent failed to report 
any of these orders as suspicious.
    I find unpersuasive Ms. Seiple's justifications for why Respondent 
failed to report any of The Drug Shoppe's orders as suspicious. From 
early on in its relationship with The Drug Shoppe, Respondent acquired 
substantial information raising a strong suspicion that the pharmacy 
was engaged in illegitimate dispensing practices. Moreover, during the 
August 2009 DEA briefing, Respondent's distributions to The Drug Shoppe 
were specifically identified as being potentially problematic.
    Regarding Ms. Seiple's claim that Respondent believed that the 
volume of pain medications being dispensed was accounted for because 
the pharmacy was filling for AIDS patients, Respondent simply accepted 
this assertion without any further inquiry as to how many HIV/AIDS 
patients the pharmacy had, let alone how many of these patients were 
actually being prescribed oxycodone 30. Nor did Ms. Seiple address the 
many instances in which orders were held by the SOMS and yet Respondent 
filled the orders without contacting the pharmacy and obtaining an 
explanation (let alone then independently verifying the explanation) 
and a new UR.
    Nor do I find persuasive Ms. Seiple's explanation as to why it took 
until February 2011 for Respondent to discover that The Drug Shoppe's 
PIC had been criminally charged with an offense related to controlled 
substances. Even assuming that Respondent was unaware of Mr. Agravat's 
criminal charge until February 2011, the due diligence file establishes 
that the form for the 2008 site visit included a question which asked, 
in part, whether any of the staff pharmacists had ever been criminally 
prosecuted. Notably, Respondent's consultant left the answer blank and 
there is no evidence that Respondent ever followed up on the omission. 
Moreover, none of the forms Respondent subsequently used to document 
its due diligence and site visits even asked this question. And in any 
event, there were sufficient other circumstances present that created a 
strong suspicion that The Drug Shoppe was engaged in illegitimate 
dispensing practices. I therefore reject Respondent's justifications as 
to why it did not report any of The Drug Shoppe's orders as suspicious 
prior to February 2011.

Englewood Specialty Pharmacy

    Prior to April 1, 2009, Respondent had obtained substantial 
information creating a strong suspicion as to the legitimacy of 
Englewood Specialty Pharmacy's dispensing practices. For example, in a 
due diligence review conducted in March 2008 because Englewood was 
seeking an increase in its purchasing limits for oxycodone and 
hydrocodone, Englewood reported that 30 percent of the prescriptions it 
filled were for controlled substances and 15 percent of the 
prescriptions were for schedule II drugs. Yet the UR provided by 
Englewood, which covered the month of January 2008, also showed the 
number of prescriptions for each drug and even totaled the 
prescriptions for the various schedules and the non-controlled 
prescriptions. Notably, as found above, schedule II drugs actually 
comprised more than 32 percent and all controlled substances comprised 
51 percent of the prescriptions dispensed.
    In terms of dosage units, the UR showed that out of Englewood's 
total dispensings of 342,760 du for all prescription drugs, schedule II 
drugs comprised 161,279 du, or 47 percent of its total dispensings. 
Moreover, controlled substances comprised 67 percent of its total 
dispensings, even after counting carisoprodol as a non-controlled drug. 
Of further note, while a Dan Farris was the owner of the pharmacy and 
listed as the Pharmacist-in-Charge by the consultant who performed the 
September 2008 site visit, there is no evidence that Respondent ever 
verified Dan Farris' licensure status with the Florida Department of 
Health.
    In September 2008, Englewood sought a further increase in its 
oxycodone purchasing limit, with its PIC reporting that 30 percent of 
the prescriptions it filled were for controlled drugs and 20 percent 
were for schedule IIs. However, the UR Englewood submitted showed that 
it filled 9,928 schedule II prescriptions and 5,595 schedule III 
through V prescriptions (after subtracting out carisoprodol), out of a 
total of 22,315 prescriptions. Thus, schedule II prescriptions 
comprised 44.5 percent of all prescriptions and all controlled 
substances prescriptions comprised nearly 70 percent of all 
prescriptions the pharmacy dispensed.
    Moreover, in terms of dosage units, the UR showed that schedule II 
drugs comprised 57 percent of the total dispensings and all controlled 
substances (again after subtracting carisoprodol) comprised 75 percent 
of the total dispensings. Even assuming that the pharmacist's 
representations as to the percentage of the prescriptions comprised by 
schedule II and all controlled substances were estimates, the disparity 
between these statements and the actual figures as shown in the UR was 
too large to be ignored. Yet there is no evidence that Respondent 
compared the prescriptions levels on the UR with the pharmacist's 
statement.\179\
---------------------------------------------------------------------------

    \179\ Throughout the proceeding Respondent has argued that is 
unfair to fault it for failing to compare the dispensing percentages 
as reported by the pharmacies with those shown by the URs because 
neither before, nor as part of the August 2009 compliance review, 
did the Agency identify this as a deficiency in its procedures. 
While it is true that, in some instances, the pharmacy's URs did not 
include the number of prescriptions, in Englewood's case, the URs 
did and yet the information was still ignored. This suggests that 
Respondent's purpose in asking these questions was simply to go 
through the motion of conducting due diligence.
---------------------------------------------------------------------------

    Most significantly, in early November 2008, Respondent finally 
conducted a

[[Page 55489]]

site visit at Englewood, during which its PIC reported that all 
controlled substance prescriptions comprised only 25 percent of the 
prescriptions it filled. Tellingly, Respondent's consultant wrote in 
his report that ``[h]e [the PIC] appears to be doing a larger narcotic 
business than he admits to.'' RX 2C, at 78. Yet even this did not 
prompt Respondent to review the information provided by the UR and 
compare it with the various statements the PIC had made, and most 
incredibly, Respondent subsequently approved Englewood to purchase 
50,000 du of oxycodone per month.
    Notwithstanding the purchasing limit, Respondent filled orders for 
more than 80,000 du in the April (30,000 over the purchasing limit), 
and 102,000 du in both June and July 2009 (52,000 over the purchasing 
limit).\180\ Respondent, however, had not obtained a new UR since 
September 2008, and even then the June and July orders exceeded its 
average monthly dispensings of oxycodone 30 and 15 mg (approximately 
74,000 for the two dosages combined) as shown on that report by 
approximately 28,000 du. Yet there is no evidence that Respondent 
contacted the pharmacy and obtained an explanation for the orders and 
there is no evidence explaining why Respondent ignored the purported 
purchasing limit. Based on the circumstances presented, I conclude that 
the orders during these months were suspicious and that Respondent 
violated 21 CFR 1301.74(b) by failing to report them.
---------------------------------------------------------------------------

    \180\ As found above, the June 2009 orders were comprised 
entirely of 30 mg tablets, and the July orders included 100,000 du 
of the 30 mg tablets.
---------------------------------------------------------------------------

    While the SOMS became operational in August 2009, Respondent filled 
orders placed on August 3 for 90,000 oxycodone 30 and 12,000 oxycodone 
15, totaling 102,000 du, and on September 28, it filled orders for 
90,000 du of oxycodone 30 and 10,000 du of oxycodone 15. Yet the SOMS 
notes show that neither set of orders were held for review. GX 18, at 
163. As previously explained, because the SOMS recalculated the CSL 
every month based on the highest monthly total of doses invoiced in the 
preceding six months, the CSL was increased even where the orders were 
never properly reviewed such as in the months of June and July 2009. 
Here again, this supports a finding that as implemented, the SOMS was 
not an effective control against diversion. Moreover, with respect to 
the September 28 orders, Englewood was specifically identified during 
the August 2009 DEA briefing as a customer whose oxycodone purchases 
were problematic. GX 48A, at 3; GX 12, at 23. Yet Respondent even 
failed to report the September orders as suspicious.
    In early October 2009, Respondent finally obtained a new UR (for 
the month of September), 11 months after it had obtained the previous 
UR. Of note, by du, the UR showed that schedule II drugs comprised 62 
percent and all controlled substances comprised 77 percent of 
Englewood's total dispensings. Moreover, Englewood's monthly 
dispensings of oxycodone 30 had increased from 51,341 to 123,476 du.
    Ms. Seiple noted that Englewood's account was ``showing usage of 
150k on oxy in [the] month of September'' \181\ and that the pharmacy 
was also purchasing from Amerisource Bergen, another distributor. Ms. 
Seiple further documented that she was ``very concerned w/quantity 
dispensed per UR'' and was recommending that Englewood be limited to 
50,000 du of oxycodone until the Compliance Committee reviewed the 
account.\182\
---------------------------------------------------------------------------

    \181\ This would be accurate if one only counted Englewood 
dispensings of oxycodone 30 and 15 (26,097 du). As found above, 
Englewood's dispensings of all oxycodone products, including 
extended release drugs, totaled nearly 216,000 du, or 44 percent of 
its total dispensings.
    \182\ Ms. Seiple also documented that she was very concerned 
with the quantities of methadone being dispensed by Englewood and 
had discussed with its PIC the size of the prescriptions and been 
told that they averaged 480 to 600 du per script. Yet the UR showed 
that the prescriptions averaged only 258 du, provided one actually 
bothered to add up the two line items on the UR and calculate the 
average per prescription. RX 2C, at 41. This was another example of 
Englewood's PIC providing information, the falsity of which was 
easily ascertainable, which Respondent ignored.
---------------------------------------------------------------------------

    While the Compliance Committee reviewed the account and adopted Ms. 
Seiple's recommendation to reduced Englewood's oxycodone CSL to 50,000 
du, on October 27, Englewood ordered 100,000 du of oxycodone 30 and 
20,000 of oxycodone 15. While the order for 30 mg was reduced to 50,000 
du and the order for 15 mg was deleted, neither order was reported as 
suspicious as it should have been. Indeed, Ms. Seiple's documented 
concern over the quantity of oxycodone being dispensed by Englewood 
begs the question of exactly what additional evidence was required to 
render the orders suspicious.
    On December 3, Englewood placed orders for 50,000 du of oxycodone 
30 and 24,000 du of methadone. This, however, was only three days after 
Respondent had filled an oxycodone order for 37,500 du which placed 
Englewood at its CSL, which apparently had been reduced due to supply 
issues. While Respondent deleted the order and told the PIC that it 
would not fill the order until there was a review by the Compliance 
Committee, it did not obtain an explanation for the order or a new UR 
and it failed to report the orders as suspicious.
    However, two weeks later, Englewood placed more orders for 50,000 
oxycodone 30 and 24,000 du of methadone. While Ms. Seiple documented 
that she called the pharmacy and told the PIC that order would not be 
shipped but could be resubmitted in four days, here again, there is no 
evidence that Ms. Seiple asked the PIC why his pharmacy needed so much 
oxycodone. She also failed to obtain a new UR and failed to report the 
order as suspicious.
    Notwithstanding the extensive evidence that Englewood was engaged 
in illegitimate dispensing practices, on December 28, Respondent's 
compliance committee conducted a new review and approved the pharmacy 
to purchase 50,000 du of oxycodone 30 and 24,000 du of methadone. 
However, the orders were not reported as suspicious. Based on the 
evidence, I conclude that the orders were suspicious and should have 
been reported.
    Moreover, on Jan. 12, 2010, Respondent conducted a second site 
visit at Englewood. While the inspector (Mr. Chase) documented that Dan 
Farris was the owner and that he had never had his license suspended, 
there is no evidence that Respondent ever verified this information. 
Mr. Chase further noted that 40 percent of the prescriptions filled by 
Englewood were for any controlled substances and that this was ``a 
little high'' and that ``25 [percent] were for schedule II drugs.''
    While Chase recommended that Respondent obtain a new UR and compare 
it with the figures provided by the pharmacist, it did not obtain a new 
UR until August 11, 2010, seven months later. Moreover, as found above, 
the most recent UR showed that schedule II drugs comprised 45 percent 
and all controlled substances comprised 66 percent of the prescriptions 
Englewood dispensed. Yet there is no evidence that Respondent's 
Compliance Department even examined the previous UR.
    Thereafter, beginning in late January 2010, Englewood repeatedly 
placed oxycodone orders that exceeded the CSL on a rolling 30-day 
basis. While the orders were held by the SOMS, the evidence shows that 
the orders were filled, with the typical justification being that the 
orders were supported by Englewood's UR, which was already three months 
old (as of January) and which had prompted Ms. Seiple to

[[Page 55490]]

initially limit the account because of her concern with the quantities 
being dispensed. See, e.g., RX 2C, at 2 (MFR note of Jan. 26; ``Ship 
per UR per Committee signed by Wayne''). And in other instances, the 
orders were justified as being within the CSL, even though they clearly 
were not. See, e.g., GX 18, at 164 (April 15 order for 50,000 du of 
oxycodone 30 approved as ``under CSL'' even though the order placed 
Englewood's oxycodone orders at 139,600 du on a rolling 30-day basis); 
id. (May 26 SOMS notes: ``release order under CSL'' even though filled 
orders totaled 80,000 du on both a rolling 30-day and calendar month 
basis and subsequent notes indicate the CSL was set at 63,000). None of 
these orders were reported as suspicious. I hold that they were.
    Indeed, the evidence shows that at Mr. Corona's direction, 
Respondent adopted a policy of filling Englewood's orders as long as 
the quantity was supported by the UR and without obtaining an 
explanation from the pharmacy, which was independently verified, and a 
new UR. See RX 2C, at 2. This was contrary to the representations made 
by Respondent to this Agency as to how its SOMS program would be 
operated and resulted in Respondent's failure to report numerous 
suspicious orders. And I further hold that this policy rendered the 
SOMS an ineffective system for disclosing suspicious orders. 21 CFR 
1301.74(b).
    Thereafter, on June 28, 2010, Respondent, which had filled an order 
for 50,000 du of oxycodone 30 three days earlier, edited an order from 
40,000 du (400 bottles) to 13,000 (du). While the SOMS notes indicate 
that the order was edited down to keep Englewood at its CSL, there is 
no evidence that Respondent contacted the pharmacy and obtained an 
explanation for the order. It did not obtain a new UR, even though the 
last UR was then nine months old. Nor did it report the order as 
suspicious. I hold that it was.
    So too, only two days later, Englewood placed another order, this 
being for 9,600 du of oxycodone, which Respondent deleted. While 
Respondent attempted to contact the pharmacy's PIC, it was unable to 
get a hold of him and it failed to obtain an explanation for the order. 
It also failed to report the order as suspicious. I hold that it was.
    On July 13, Respondent filled an order for 50,000 du of oxycodone, 
bringing the rolling 30-day total of filled orders to 113,000 du, 
nearly double the CSL of 63,000. While Ms. Seiple documented that the 
PIC had stated that he was no longer ordering his allotment at the end 
of the month, the evidence shows that Englewood had been ordering large 
quantities (typically 50,000 du) in the middle of March, April and May 
2010. Thus, although Respondent could have verified the PIC's statement 
simply by reviewing its own records, there is no evidence that it did 
so and it again failed to obtain a new UR. Nor did it report the order 
as suspicious even though the order placed Englewood at more than 
50,000 du over its CSL. I hold that the order was suspicious.
    Also, notwithstanding the PIC's statement that he was no longer 
ordering his allotment at the end of the month, on July 27, 2010, 
Englewood ordered 30,000 du, which again placed its orders over the 
CSL. While Respondent edited the orders to 13,000 du, it did not 
contact the pharmacy and obtain an explanation for the order. Nor did 
it obtain a new UR. And while under its policies, Respondent was 
required to review the entire file on Englewood before filling an order 
that was held by the SOMS, there is no evidence that it questioned why 
Englewood had ordered 30,000 du, given the PIC's statement that he was 
no longer ordering at the end of the month. Respondent did not report 
the order as suspicious. Here again, I conclude that the order was 
suspicious.
    On August 10, 2010, Respondent filled an order for 50,000 du, 
bringing the total of Englewood's filled orders to 113,000 du on a 
rolling 30-day basis. Respondent did not contact the pharmacy and 
obtain an explanation for the order. Instead, Ms. Seiple released the 
order ``with reservation''--``pending updated UR.'' Notably, Respondent 
had not obtained a new UR in ten months (even though Respondent's 
policy required it to obtain a new UR every time an order was held by 
the SOMS) and it had been seven months since its inspector had 
recommended that it obtain a new UR. The order was not reported as 
suspicious. I hold that the order was suspicious.
    Respondent finally obtained a UR (for July 2010) the day after it 
filled the order. The UR showed that Englewood had dispensed more than 
204,000 du of oxycodone 30 during the month. The dispensings of 
oxycodone 30 alone comprised more than 39 percent of the pharmacy's 
total dispensings, and the July 2010 dispensings of oxycodone 30 showed 
an increase of more than 80,000 du from the prior UR. The UR also 
showed that with the exception of carisoprodol, the top ten drugs 
dispensed by volume included six oxycodone products, methadone, and two 
alprazolam products. Moreover, 18 of the top 20 drugs were federally 
controlled substances.
    Yet even after obtaining this UR, which showed an even higher level 
of oxycodone dispensing than the September UR which had prompted Ms. 
Seiple's concern over Englewood's dispensing levels, Respondent 
continued to fill the pharmacy's orders for large quantities of 
oxycodone. On both August 23 and September 27, 2010, Englewood 
submitted orders which placed it over its oxycodone CSL, and yet on 
both occasions Respondent failed to obtain an explanation for the 
orders. While Respondent edited the August 23 order from 25,000 du to 
13,000 du, Englewood's orders were still over the CSL by 13,000 du and 
yet Respondent did not report the order as suspicious. And while 
Respondent edited the September 27 order from 18,000 to 13,000 du and 
brought Englewood within its CSL, here again, Respondent failed to 
obtain an explanation for the order. Instead, Respondent treated the 
5,000 du that was edited off the order as if Englewood had never 
ordered this additional amount and failed to report the order. I hold, 
however, that the order was also suspicious and that Respondent was 
required to report both the August 23 and September 27, 2010 
orders.\183\
---------------------------------------------------------------------------

    \183\ The next day, Respondent placed additional orders for 
1,200 oxycodone 20 and 600 du of oxycodone 10, bringing Englewood's 
rolling 30-day total to 64,800 du and over the CSL. Respondent 
filled the orders, notwithstanding that it failed to obtain an 
explanation for the orders and did not report them as suspicious, 
noting that this was the ``first time purchase [sic] on Oxy since 
2009.''
---------------------------------------------------------------------------

    Respondent only terminated Englewood as a customer after a 
subsequent site visit, during which its inspector observed cars with 
both Kentucky and Tennessee license plates in the parking lot and 
documented that there was ``suspicious activity outside of the 
pharmacy.'' Yet Englewood had repeatedly presented numerous other 
suspicious circumstances during the course of Respondent's dealings 
with it.
    As for Ms. Seiple's explanations as to why Respondent did not 
report any of Englewood's orders as suspicious, Ms. Seiple failed to 
address why Respondent did not verify the status of the PIC's license. 
While Ms. Seiple asserted that Respondent was aware of the volume of 
oxycodone and other controlled substances being dispensed and the 
percentage of controlled to non-controlled drugs, her claim that these 
were accounted for by the pharmacy's `business model'' of servicing 
patients from two large hospitals, a number of physician's offices and 
``several nearby pain clinics'' is unpersuasive. As

[[Page 55491]]

previously explained, hospitals have their own pharmacies, and in any 
event, Respondent produced no evidence to support the conclusion that a 
pharmacy's mere proximity to a hospital would result in controlled 
substances being dispensed at a level more than three times (by ratio) 
than that of a typical retail pharmacy. So too, even if there were a 
number of physician's offices near the pharmacy, this does not explain 
why controlled substances would be dispensed at a ratio more than three 
times that of a typical retail pharmacy.
    To be sure, Ms. Seiple also contended that Englewood ``filled 
prescriptions for patients from several nearby pain clinics and 
identified the physicians,'' and that ``[t]his accounted for the volume 
of pain medications and other controlled substances, including 
oxycodone, being dispensed relative to other drugs.'' Yet two of the 
doctors were located in Sarasota, a distance of approximately 47 miles 
from Port Charlotte, which is hardly ``nearby,'' and which begs the 
question as to why the pharmacy's patients were travelling this 
distance to get their prescriptions. And while filling prescriptions 
written by doctors working at pain clinics may well have accounted for 
the high volume of controlled substances being dispensed by Englewood, 
it says nothing about the legitimacy of those prescriptions. Respondent 
did not, however, conduct any inquiry into whether these physicians 
even held licenses, let alone whether they had any training or board 
certification in pain management or other related specialties.
    Moreover, in the initial site visit report, Respondent's consultant 
specifically noted that Englewood's PIC ``appears to be doing a larger 
narcotics business then he admits to.'' Ms. Seiple totally failed to 
address what action, if any, she took in response to this observation 
as well as the other instances in which Englewood's PIC represented 
that the percentage of its dispensings comprised by both schedule II 
and all controlled substances were substantially lower than what the 
URs showed. This was so even though Englewood's URs showed the total 
number of prescriptions for each schedule of controlled substance as 
well as for non-controlled prescriptions drugs.
    So too, putting aside that the SOMS was not even operational until 
August 2009, Ms. Seiple did not claim that for every order held by the 
SOMS, Respondent obtained an explanation for the order, let alone that 
it independently verified the explanation, and a new UR. Indeed, 
Respondent rarely obtained an explanation for the orders, and it 
obtained only four URs during the course of its relationship with 
Englewood, as Ms. Seiple conceded in her declaration. Notably, during 
the period from April 1, 2009 through Respondent's termination of 
Englewood in October 2010, it obtained a new UR only twice: Once in 
October 2009 (for Sept.), more than one year after it had obtained the 
previous UR, and again in August 2010, ten months later. Respondent 
also disregarded its inspector's recommendation to get a new UR 
following the January 2010 site visit.
    Ms. Seiple's explanation for why it did not get a UR 
notwithstanding the inspector's recommendation was that Respondent's 
policies and procedures did ``not specify any particular percentage of 
controlled drugs to non-controlled drugs that the Company considers 
`high' or `a little high.'' While that may be, Respondent's policies 
and procedures did require that a new UR be obtained whenever an order 
was held for review by the SOMS, and as found above, the SOMS held 
numerous orders after October 2009, and this continued through the 
following year. However, Ms. Seiple offered no explanation for why 
Respondent failed to comply with its Policy and Procedures applicable 
to the review of held orders.
    Moreover, the controlled substance percentage (40) reported by the 
inspector was double the percentage discussed at the August 2009 
compliance review, as well as double the figure noted by the Agency in 
Southwood. Unexplained by Ms. Seiple is what level of controlled 
substance dispensing was required to induce her to follow the 
inspector's recommendation. I therefore find Ms. Seiple's explanation 
for why it failed to obtain a new UR unpersuasive. And I further find 
that none of the reasons offered by Ms. Seiple for failing to report 
Englewood's orders as suspicious excuse Respondent's failure to do so.

City View Pharmacy

    More than one year before April 1, 2009, Respondent had acquired 
substantial information which created a suspicion as to the legitimacy 
of City View's dispensing practices. More specifically, in March 2008, 
City View requested an increase in the quantity of solid dose oxycodone 
it could purchase to 20,000 du per month. In reviewing City View's 
request, Respondent documented that 60 percent of the prescriptions 
filled by the pharmacy were for controlled substances and 40 percent 
were for schedule II drugs. These figures placed City View well above 
the controlled to non-controlled dispensing ratio of a typical retail 
pharmacy as discussed in Southwood.
    As part of the review, City View provided a UR for the month of 
February 2008. Notably, the UR showed that oxycodone 30 alone accounted 
for more than 24 percent of its total dispensings and oxycodone 
products alone accounted for more than 35 percent. Of note, during a 
site visit by its consultant done three months later, City View 
reported that all controlled substances comprised 35 to 40 percent of 
the prescriptions it filled and that it had purchased drugs from five 
different distributors during the previous 24 months.
    During the site visit, City View also reported that it filled 
prescriptions for pain management physicians, identifying six such 
physicians by name and providing their DEA numbers. Yet there is no 
evidence that Respondent verified the credentials of these physicians.
    Shortly after the site visit, Respondent approved City View to 
purchase 25,000 du of oxycodone per month while at the same time 
rejecting its request to purchase alprazolam because it was ``too new'' 
a customer. Unexplained is why City View was also not too new to 
purchase oxycodone.
    Notwithstanding that City View's oxycodone purchasing limit was set 
at 25,000 du, in both June and July 2009, Respondent filled orders by 
the pharmacy totaling more than 31,000 du. Respondent did not document 
that it obtained any explanation for why it allowed City View to exceed 
the purchasing limit. Moreover, Respondent had not obtained a new UR 
since the March 2008 UR, more than one year earlier.
    After Respondent filled an order (Aug. 3, 2009) for 20,000 du of 
oxycodone 30 and 2,400 du of oxycodone 15, Ms. Seiple made an entry in 
the Ship to Memos stating ``8/3/09 please keep on hold until UR is 
received per file.'' GX 19, at 111. Yet on August 25, one week after 
Respondent had represented to DEA that when an order was held by the 
SOMS, it would contact the pharmacy and obtain an explanation for the 
order (which it would purportedly then independently verify) as well as 
a new UR, Respondent filled an order for 7,600 du (which placed it at 
33,000 du on a rolling 30-day basis), notwithstanding that it did not 
contact the pharmacy and obtain an explanation for the order and still 
had not obtained a new UR. Instead, it released the order on the ground 
that it was at the pharmacy's ``oxy limit for the month.''

[[Page 55492]]

    Indeed, Respondent did not obtain a new UR until October 5, even 
though City View submitted orders on both September 1 and 14, 2009, 
which placed it over its CSL (according to the SOMS notes) on a rolling 
30-day basis. Respondent did not contact City View and obtain an 
explanation for either order. Instead, it released the September 1 
order, the explanation being that the order placed City View ``under 
current limit,'' and it released the September 14 order, the 
explanation being that the order placed it ``at their [sic] current 
limit.'' Neither order was reported as suspicious, even though they had 
triggered the SOMS review because they were of unusual size. However, I 
conclude that they were suspicious.
    Still later in the month, City View placed an order for 10,000 du, 
which Respondent deleted, noting that its limit was 30,000 du and that 
it had ``already received 37,600 within 30 days.'' Moreover, while Ms. 
Seiple contacted the pharmacy the same date, the pharmacist did not 
provide the information she sought and hung up on her. While Respondent 
went so far as to place City View on compliance hold, it did not report 
the order as suspicious. I conclude that the order was suspicious.
    On October 1, City View placed an order for 10,000 du of oxycodone 
30. While Respondent deleted the order and left a message for the 
pharmacist that it would not ship without a new UR, it did not report 
the order as suspicious.
    On October 5, Respondent finally obtained a new UR, more than 17 
months after it had obtained the previous UR. The UR showed that during 
the month of September 2009, City View had dispensed 47,472 du of 
oxycodone 30. City View's dispensings of oxycodone 30 alone comprised 
41 percent of its dispensings of all prescription products. With the 
exception of carisoprodol, the top ten drugs dispensed by quantity were 
comprised of three oxycodone products (30 mg, 15 mg, and 10/325 mg), 
four different manufacturers' alprazolam 2 mg products, one 
manufacturer's alprazolam 1 mg product, and a combination hydrocodone 
10/500 mg product. All of these are highly abused drugs. The UR thus 
created a strong suspicion that City View was not engaged in legitimate 
dispensing practices.
    Notwithstanding the information provided by the UR, on October 5, 
2009, Respondent filled an order for 10,000 du of oxycodone 30. Based 
on the information provided by the UR, I hold that the order was 
suspicious, notwithstanding that the order was not held by the SOMS. GX 
19, at 119. Respondent did not, however, report the order as 
suspicious. For the same reason, I also hold that the orders for 10,000 
du which Respondent filled on October 12 and 20 were suspicious and 
should have been reported.\184\
---------------------------------------------------------------------------

    \184\ The SOMS notes show that multiple orders were placed on 
October 12. GX 19, at 119. However, only one of the entries lists 
the name of a reviewer and a reason for why the order was shipped 
and the note does not state what drug was ordered. As for the 
October 20 order, the SOMS notes do not list a reviewer and a 
reason, thus suggesting that the order was not held for review.
---------------------------------------------------------------------------

    On October 29, City View placed a further order for oxycodone 30, 
which placed its orders over its CSL on a rolling 30-day basis. While 
Respondent contacted the PIC and told him that the order was being 
deleted, it did not obtain an explanation for the order and it failed 
to report the order as suspicious, which it was based on the 
information provided by the recent UR alone.
    Thereafter, the evidence shows that City View submitted orders for 
10,000 du on November 2, 6, and 16, as well as December 1, 2009, each 
of which placed its oxycodone orders above the CSL (whether it was set 
at 30,000 du or 22,500 du) on a rolling 30-day basis, and in some cases 
at 40,000 du. While the November 16 order was edited to 2,500 du, 
Respondent failed to obtain an explanation for the orders from the 
pharmacy and a new UR. It also failed to report the orders as 
suspicious. I hold that the orders were suspicious based on both the 
information Respondent had obtained which raised a strong suspicion as 
to the legitimacy of City View's dispensings practices, and 
Respondent's failure to investigate why City View was placing orders 
which the SOMS had flagged for being of unusual size.
    Through the rest of December 2009 and January 2010, City View's 
oxycodone orders did not place it over the CSL (whether it was set at 
30,000 or 22,500 du). However, on February 1 and 8, Respondent filled 
orders for 10,000 du on each date, thus placing City View's orders at 
32,500 du on a rolling 30-day basis and over the CSL. Respondent 
approved both orders, documenting the reason as being that the orders 
were under the CSL, when they clearly were not. Respondent did not 
contact the pharmacy on either occasion and obtain an explanation for 
the order and it did not obtain a new UR. Nor did it report the orders 
as suspicious even though the orders were flagged by the SOMS for being 
of unusual size. I hold that the orders were suspicious based on the 
information Respondent had obtained regarding City View's dispensing 
practices and Respondent's failure to investigate the orders.
    On February 17, Respondent conducted a site visit, during which its 
inspector was told that schedule II drugs comprised 15 percent and all 
controlled substances comprised 30 percent of the prescriptions 
dispensed by City View. The inspector did not, however, note that City 
View was servicing any pain clinics. And while he recommended that a 
new UR be obtained and compared with the dispensing ratio reported at 
the site visit,\185\ Respondent did not obtain a new UR until April 26, 
2010, more than two months later.
---------------------------------------------------------------------------

    \185\ While on the Pharmacy Evaluation form, the questions which 
asked for the percentage of controlled drugs and the percentage of 
schedule II drugs, followed the questions: ``What is the average 
number of prescriptions filled per day?'' the Site Visit 
Recommendation form simply states: ``Control/Non-control ratio of 
30%.''
---------------------------------------------------------------------------

    The evidence shows that on February 18, as well March 3, 12, 18, 
and 24, 2010, City View placed orders for 10,000 du of oxycodone 30 
which were held by the SOMS, typically because the orders placed the 
pharmacy over its CSL on a rolling 30-day basis and typically by 
thousands of dosage units. Invariably, the orders were filled, 
notwithstanding that Respondent failed to contact the pharmacy and 
obtain an explanation for the order, with the reason given being either 
that the order was under the CSL (because Respondent counted the orders 
on a calendar-month basis) or that the order was supported by the 
dispensing levels shown on the UR, which had not been obtained since 
early October. Respondent did not report any of the orders as 
suspicious. Based on Respondent's failure to investigate the orders and 
the information it had obtained regarding the pharmacy's dispensing 
levels, I hold that the orders were suspicious.
    Moreover, while a March 24, 2010 SOMS note states that the CSL was 
22,500 du, on March 27 (a Saturday), City View placed two orders 
totaling 20,000 du, resulting in its rolling 30-day orders being 61,200 
du, nearly three times the CSL listed in the note. While the evidence 
shows that Respondent contacted the pharmacist and was told that he 
placed the second order to be released on April 1, there is no evidence 
that Respondent questioned him as to why City View's orders during 
March had increased by 70 percent from the previous month. Instead, it 
approved the first order on the ground that the ``UR supports release-
places CSL @51,200 for current period,'' even though it had not 
obtained a new UR in more

[[Page 55493]]

than five months. Nor did it report the order as suspicious. Here 
again, I hold that the order was suspicious for the reasons stated 
above. Moreover, this was another example of the CSL having been 
increased based on Respondent's having filled orders even though it 
failed to properly review those orders.
    As found above, on seven occasions during April, Respondent filled 
orders by City View which placed its rolling 30-day total at between 
61,200 and 64,000 du (depending on the date), when its CSL was 51,200. 
With the exception of the April 26 (the last April) order, when it 
finally obtained a new UR, Respondent did not even contact City View, 
let alone obtain an explanation for the orders. And even with respect 
to the April 26 order, there is no evidence that Respondent obtained an 
explanation for the order.
    Here again, Respondent's records show that the orders were 
approved, the typical reason being that the UR (from seven months 
earlier) supported the order, although in one instance (April 1), the 
reason given was that the order was ``within csl for period,'' GX 19, 
at 114, and in the instance of the April 5 order, there is no evidence 
that the order was even held for review. Id.
    As for the UR, which it finally obtained on April 26, it showed 
that during the period of March 1-30, 2010, City View had dispensed 
93,943 du of oxycodone 30, an amount which was nearly double what it 
had dispensed during September 2009. Indeed, City View's dispensings of 
oxycodone 30 alone now comprised more than 52.5 percent of its total 
dispensings. Moreover, the UR showed that City View's dispensings of 
alprazolam 2 mg, another drug highly sought after by drug abusers for 
use as a part of a drug cocktail with narcotics such as oxycodone, 
totaled 19,738 du, more than double the amount (9,722) it dispensed 
during September 2009.
    Aside from the fact that the April 26 order placed City View's 
orders at 64,000 du on a rolling 30-day basis and nearly 13,000 du 
above the CSL and was not properly investigated, I find that the March 
2010 UR alone created a strong suspicion that City View was engaging in 
illegitimate dispensing practices and rendered the April 26 order 
suspicious. I further find that Respondent failed to report the order 
as suspicious.
    Although this UR alone establishes that all of City View's 
subsequent orders through the termination of the account--nearly eight 
months later--were suspicious, the evidence establishes that City View 
continued to place oxycodone orders which were held by the SOMS and 
were not properly investigated. Nor were any of the orders reported as 
suspicious. These include orders on May 10 and 18 which placed City 
View's orders at 65,000 du, thus exceeding the 51,200 du CSL set by the 
compliance committee, both of which were released, with the reasons 
given that the orders were either within or under the CSL.
    While on May 18, 2010, Respondent conducted a due diligence survey 
by telephone, during which City View again represented that its 
dispensing ratio was 30 percent controlled to 70 percent non-
controlled, there is no evidence that Respondent compared this 
statement with the recent UR as its inspector had previously 
recommended.\186\ Nor is there any evidence that it compared the UR 
with the information DEA had previously published and provided during 
the August 2009 briefing as to the dispensing ratio.
---------------------------------------------------------------------------

    \186\ Of note, this question did not refer to the percentage of 
prescriptions. Rather, the question simply stated: ``What is your 
Daily ratio of controlled to non-controls?'' GX 19, at 38.
---------------------------------------------------------------------------

    Although City View also stated that it was servicing two small 
nursing homes and was near a medical center, Respondent did not even 
obtain the names of the homes, let alone inquire as to how many 
residents they had and the types and quantities of various controlled 
substance prescriptions the pharmacy claimed it was filling for their 
residents. In short, these superficial explanations do nothing to 
dispel the strong suspicion created by the March UR.
    On June 28, 2010, Respondent performed another site visit at City 
View. While City View's pharmacist reported a dispensing ratio 
consistent with what he had previously told Respondent, I hold that 
this does not dispel the strong suspicion created by the amounts of 
oxycodone 30 and alprazolam 2 being dispensed by the pharmacy. Nor do I 
find the inspector's notations that City View was two blocks from a 
hospital and that there were pain clinics in the area sufficient to 
dispel the strong suspicion created by the UR that the pharmacy was 
engaged in illegitimate dispensing practices.
    On July 7, 2010, Respondent reviewed the site visit and lowered 
City View's CSL to 28,700 du; it also placed it on compliance hold 
pending the receipt of an updated UR. However, Respondent did not 
obtain a new UR until December. Yet on July 13, it removed the 
compliance hold. That same day, it filled an order for 10,000 du of 
oxycodone 30, bringing City View's rolling 30-day total to 37,000 du. 
While this order placed City View at more than 8,000 du above the new 
CSL, the explanation provided in the SOMS merely states: ``rwr order 
sitevisit [sic] and ur on fiel'' [sic]. Here again, I conclude that 
Respondent failed to obtain an explanation for the order. Based on both 
the information provided by the UR, and the fact that the order was 
placed on hold because it was of unusual size and Respondent failed to 
properly investigate the order, I conclude that the order was 
suspicious. However, the order was not reported.
    Later, on July 28, Respondent edited an oxycodone order to meet the 
CSL. Here again, there is no evidence that Respondent obtained an 
explanation for the order (and a new UR) and it failed to report the 
order. For the same reasons as stated above, I hold that the order was 
suspicious but was not reported.
    On September 28, Respondent filled an order for 5,000 du of 
oxycodone 30 and 1,600 du of oxycodone 15, bringing the total of its 
filled orders to 34,700 on a rolling 30-day basis and exceeding the CSL 
of 28,700 du. Likewise, on five different dates in October, Respondent 
filled orders which brought City View's rolling 30-day total to between 
34,900 and 35,900 du, again exceeding the CSL which remained at 28,700. 
GX 19, at 117 (SOMS note entry for 10/26/10).
    With respect to each of these orders, Respondent failed to obtain 
an explanation from the pharmacy and a new UR. Here again, the orders 
were typically filled with Respondent documenting the reason as the 
orders were under the CSL, even though they were not. As explained 
previously, I hold that the orders were suspicious and should have been 
reported but were not.
    Finally, in November 2010, Respondent filled oxycodone orders on 
four separate dates, each of which placed City View's orders over its 
CSL on a rolling 30-day basis. On November 2 and 9, City View's orders 
totaled 36,300 du, and on November 18, its orders totaled 37,000 du. 
For both the November 2 and 18 orders, Ms. Seiple noted only ``rwr'' as 
the reason for releasing them. As for the November 9 order, Ms. Seiple 
noted that the order was ``being released with reservation'' and that 
the oxycodone was ``within buying pattern'' and ``under [the] CSL.'' 
Here again, I conclude that Respondent failed to obtain an explanation 
from the pharmacy for each of the orders and a new UR. And as explained 
previously, I hold that the orders were suspicious and should have been 
reported but were not.
    On December 2, Respondent finally obtained another UR, eight months 
after

[[Page 55494]]

it had obtained the previous UR. However, the UR was incomplete. 
Nonetheless, on December 6, Respondent filled orders for 8,000 du of 
oxycodone 30 and 1,000 du of oxycodone 15, before placing City View on 
compliance hold three days later. While it is unclear whether these 
orders were held by the SOMS, I hold that the orders were suspicious 
based on the information provided by the previous UR. However, 
Respondent failed to report the orders.
    On or about December 15, 2010, City View placed a further order for 
controlled substances which, based on the various notes made by Ms. 
Seiple, was likely for oxycodone. Respondent placed the order on hold, 
with Ms. Seiple documenting that she had called the PIC and her 
``concerns regarding # of doses dispensed as opposed to noncontrols'' 
and how the pharmacy made a profit (apparently because insurance did 
not reimburse at a high enough rate given the cost of the drugs). RX 
2D, at 2. The following day, Ms. Seiple noted that she had spoken to 
City View ``on phone multiple times regarding ratio of controls & 
noncontrols,'' as well as ``in regards to ratio cash vs. insurance,'' 
and that the pharmacy was ``placed in noncontrolled status due to 
customer indicating cash in OXY.'' Id. While Respondent apparently 
deleted the December 15 order, it did not report the order as 
suspicious. I hold that the order was suspicious.
    Significantly, Respondent had information that the ratio of 
controlled to non-controlled drugs being dispensed by City View was 
suspiciously high well before April 1, 2009, and each of the URs it 
obtained thereafter corroborated this. This information alone was 
enough to establish a strong suspicion as to the legitimacy of City 
View's dispensing practices.\187\
---------------------------------------------------------------------------

    \187\ Given that the record does not contain evidence as to how 
much Respondent charged City View for the drugs and how much City 
View was paid by insurers, I do not address whether the concern as 
to how City View could make a profit on its oxycodone dispensings 
was present prior to December 2010.
---------------------------------------------------------------------------

    As for Ms. Seiple's declaration, none of the reasons she offered 
dispelled the strong suspicion created by the information Respondent 
had obtained. While Ms. Seiple asserted that City View's business model 
involved marketing to nursing homes, hospice programs, and in-patient 
medical facilities, at the time of 2008 site visit, the pharmacy did 
not identify any actual customer and nearly two years later, the 
pharmacy reported that it serviced only two small nursing homes with 20 
to 30 beds; Respondent also obtained no information as to how many of 
the nursing homes residents were being prescribed oxycodone 30. 
Although Ms. Seiple also asserted that City View was located within two 
blocks of two hospitals, Respondent produced no evidence as to why this 
justified the pharmacy's dispensing levels of oxycodone and other 
highly abused drugs relative to non-controlled drugs.
    To be sure, City View also reported that it filled prescriptions 
for patients from several pain clinics. While this undoubtedly 
accounted for both the large volume of pain medications and the high 
percentage of oxycodone dispensed by City View, this does not establish 
that the dispensings were legitimate. Indeed, notwithstanding that 
Respondent's CEO had earlier decided to cut off sales to pain 
physicians in Florida who were engaged in direct dispensing, it 
conducted no further investigation into the qualifications of the 
physicians that were identified by the pharmacy as writing the 
oxycodone prescriptions. It did not even verify if they were licensed 
by the State, let alone whether they had any training or board 
certification in pain management or another related specialty. Nor did 
it ask the pharmacy as to the nature of the prescriptions that these 
physicians were writing and whether they included such cocktails as 
oxycodone and alprazolam.
    Moreover, putting aside Ms. Seiple's misleading statement that 
after City View's account was approved, the SOMS held any order that 
met the suspicious order criteria and that these orders were released 
only after review, the evidence shows that while numerous orders were 
held, Respondent rarely, if ever, contacted the pharmacy and obtained 
an explanation for the order, which it then independently verified. 
Also, Ms. Seiple did not address why Respondent failed to obtain a new 
UR whenever an order was held, nor did she explain why Respondent 
ignored the information which showed that City View's dispensings of 
oxycodone 30 had nearly doubled between September 2009 and March 2010. 
And finally, while Ms. Seiple asserted that Respondent terminated City 
View after it developed concerns over the pharmacy's dispensing volumes 
and ratio of controlled to non-controlled drugs, the same concerns were 
present well before April 1, 2009. I thus conclude that none of Ms. 
Seiple's explanations refute the conclusion that the various orders 
were suspicious.

Medical Plaza Pharmacy

    On March 24, 2009, Respondent conducted a due diligence survey for 
Medical Plaza's request to purchase controlled substances. During the 
survey, the PIC reported that 35 to 40 percent of the prescriptions 
filled by the pharmacy were for schedule II controlled substances but 
that he was unsure of the percentage of dispensings comprised by all 
controlled substances. He also represented that 70 to 80 percent of the 
prescriptions he filled were paid for by insurance.
    Thereafter, Respondent approved Medical Plaza to purchase 
controlled substances, and while the date of this decision is unclear, 
the evidence shows that Respondent filled the pharmacy's orders for 
oxycodone 30 as early as April 10, 2009. Notably, Respondent approved 
Medical Plaza without having performed a site visit or having obtained 
a UR.
    On June 18, 2009, Respondent finally performed a site visit. As 
found above, prior to the site visit, Respondent had filled orders for 
14,800 du of oxycodone 30. During the site visit, Respondent's 
inspector noted that the pharmacy did not fill prescriptions for 
physicians who were primarily engaged in pain management. Yet the 
inspector also noted that schedule II drugs comprised 20 percent and 
all controlled substances comprised 60 percent of the pharmacy's 
prescriptions, this being the second time that Respondent had received 
information that Medical Plaza's dispensing ratio of controlled to non-
controlled drugs was suspicious. He also noted that 25 percent of the 
prescriptions were paid for with cash.
    Nonetheless, Respondent did not obtain a UR until August 11, after 
Medical Plaza sought an increase in the amount of controlled substances 
it could purchase, apparently after orders for 5,000 oxycodone 15 and 
3,600 oxycodone 10/325 were held by the SOMS. Prior to this date, 
Respondent had filled orders for 19,800 du of 30 mg tablets.\188\ Given 
the acknowledgement of Respondent's CEO and former Vice-President that 
they were aware of the oxycodone abuse crisis ongoing in Florida during 
this time period, as well

[[Page 55495]]

as the information Medical Plaza provided the pharmacy during the March 
2009 survey, which included that schedule II drugs comprised 35 to 40 
percent of the prescriptions it dispensed, I conclude that Respondent's 
failure to obtain a UR prior to approving Medical Plaza to purchase 
controlled substances was reckless and a breach of its due diligence 
duty to conduct a meaningful investigation of its customer. Southwood, 
72 FR at 36,498-99.
---------------------------------------------------------------------------

    \188\ It is noted that under Respondent's Policies and 
Procedures, it did not bind itself to obtaining a UR prior to 
selling controlled substances to a new customer. See RX 78, at 30-31 
(Policy 6.1). Moreover, while its Policy mandates the performance of 
additional due diligence in various circumstances including where 
there are ``[i]ndications that the customer is or may be diverting 
controlled drugs,'' even then its Policy does not require that a UR 
be obtained. Id. at 30-31 (``Additional due diligence may include 
any or all of the following steps, as determined by a Compliance 
Manager: i. Drug Utilization Records.'').
---------------------------------------------------------------------------

    As for the UR, which covered the month of July, it showed that 
Medical Plaza had dispensed 61,130 du of oxycodone 30 and 27,122 du of 
oxycodone 15, out of the pharmacy's total dispensings of 201,445 du. 
Thus, oxycodone 30 alone accounted for more than 30 percent of Medical 
Plaza's dispensings and the combined dispensings of oxycodone 30 and 15 
accounted for nearly 44 percent of its dispensings. Also, as found 
above, Medical Plaza's dispensings of all oxycodone products accounted 
for more than 51 percent of its total dispensings. Thus, even ignoring 
that during the June 2009 site visit, Medical Plaza had changed its 
story (from what it told during the March 2009 due diligence survey) 
regarding the level of its schedule II dispensings, the level of the 
pharmacy's oxycodone dispensings was more than sufficient to create a 
strong suspicion as to the illegitimacy of the pharmacy's dispensing 
practices.
    The UR also provided other indicia that Medical Plaza was engaged 
in illegitimate dispensing activity. As found above, whether by looking 
at the number of prescriptions or the quantity of dosage units, even a 
cursory review of the UR shows that controlled substances were 
predominant among the most highly dispensed drugs. Also, as found 
above, Medical Plaza blacked out the financial data (which included its 
costs and profits) for nearly all of the controlled substances it 
dispensed. Yet Medical Plaza had previously represented that 70 to 80 
percent of the prescriptions it filled were paid for by insurance and 
Respondent's former Vice-President testified that ``DEA advised us to 
focus on whether a customer had a high percentage of cash for 
controlled substance prescriptions (as compared to third-party 
insurance payments) [and] refused to accept insurance for the payment 
of controlled substance prescriptions.'' GX 51B, at 4 ] 12. In short, 
the blacked-out financial data begged the question, which Respondent 
did not ask until seventeen months later (when it ignored the answer 
anyway), what was the pharmacy hiding? I hold, however, that the 
blacked-out data provided an additional basis of suspicion as to the 
legitimacy of Medical Plaza's dispensing practices.\189\
---------------------------------------------------------------------------

    \189\ It also noted that the pharmacy had represented that it 
did not fill prescriptions for physicians who were primarily engaged 
in pain management. The pharmacy's representation and the quantity 
of oxycodone and other narcotics it was dispensing begged the 
questions of who were the physicians writing these prescriptions and 
what were their practice specialties? There is, however, no evidence 
that Respondent asked these questions.
---------------------------------------------------------------------------

    As noted above, on August 11, Medical Plaza placed orders for 5,000 
du of oxycodone 15 and 3,600 du of Endocet 10, thus triggering holds by 
the SOMS. While the notations on a form (used to review requests to 
increase a customer's controlled substances purchasing limits) state 
that Medical Plaza was ``[i]n a medical building of 60 doctors, and 
next to a hospital,'' Respondent conducted no further inquiry into the 
practice specialties of these physicians and whether they would be 
prescribing such powerful narcotics as oxycodone 30 in the course of 
their medical practices.
    While this review prompted Respondent to obtain a UR, the following 
day Respondent filled the orders. Moreover, while Ms. Seiple documented 
that Medical Plaza's request to increase its purchasing limit was to be 
reviewed by the Compliance Committee, Respondent filled the orders 
before the review was even conducted. For the reasons explained above, 
I hold that the information Respondent obtained provided multiple 
grounds to suspect that Medical Plaza was engaged in illegitimate 
dispensing practices and that the two orders were suspicious and should 
have been reported. Respondent did not, however, report the orders. It 
also failed to report various orders placed by Medical Plaza in 
October, including an order for 10,000 du of oxycodone 30.
    On November 17, Medical Plaza placed orders for 7,000 du of 
oxycodone 30; 3,000 du of oxycodone 15; 1,200 du of OxyContin 80; 1,200 
du of Endocet 10/325; and 200 du of Endocet 5/325. As found above, 
these orders placed Medical Plaza's oxycodone orders at 23,600 du on a 
rolling 30-day basis, which was 5,000 du over its CSL. While Respondent 
filled the orders for OxyContin and Endocet, it held the orders for the 
30 and 15 mg tablets.
    The next day, Respondent conducted a new due diligence survey. 
Respondent's representative noted that Medical Plaza's ``primary 
customer base'' was as a community pharmacy and did not check the 
form's boxes for either pain management or workers compensation. 
Respondent's representative also noted that Medical Plaza did not do 
any institutional or closed-door business. Medical Plaza further 
represented that its ``ratio of controls [sic] to non controls [sic]'' 
\190\ was ``40/60'' and that ``70 to 80'' percent of the prescriptions 
were paid by insurance.
---------------------------------------------------------------------------

    \190\ Here again, the question did not refer to percentages of 
prescriptions but was simply phrased as: ``What is your daily ratio 
of controls [sic] to non controls [sic]?''
---------------------------------------------------------------------------

    There is, however, no evidence that Respondent questioned why 
Medical Plaza was dispensing the quantities of oxycodone as shown on 
the last UR (July 2009) or why the ratio of controlled to non-
controlled dispensings reported by the pharmacy was double the level 
discussed in the August 2009 briefing.
    Moreover, there is no evidence that Respondent's employee obtained 
an explanation for the orders and it also failed to obtain a new UR. 
However, Respondent filled the orders, noting that they were shipped 
with reservation and that an updated UR was requested. Based on the 
various information Respondent had obtained, which raised a strong 
suspicion as to the legitimacy of Medical Plaza's dispensing practices, 
as well as the fact that these orders were held by the SOMS because 
they were of unusual size and yet Respondent failed to obtain an 
explanation for the orders and a new UR, I conclude that the orders 
were suspicious and should have been reported but were not.
    On December 14, Medical Plaza placed an order for 15,000 du of 
oxycodone, which placed it over CSL by 9,000 du on a rolling 30-day 
basis. As found above, while Respondent obtained a new UR, it failed to 
obtain an explanation for the order. Moreover, as explained previously, 
while Respondent did not fill the order, it was nonetheless required to 
report it, because it was suspicious based on both the information 
Respondent had obtained regarding Medical Plaza's dispensing practices 
and because the order was held by the SOMS based on its unusual size.
    As for the UR, which covered the month of November, it showed that 
Medical Plaza's dispensings of oxycodone 30 had increased by 31,274 du 
(51 percent) from the level of the previous UR to 92,404 du. The UR 
also showed that Medical Plaza's dispensings of oxycodone 15 had 
increased by 16,929 (62.4 percent) from the previous level to 44,051 
du. Thus, Medical Plaza's dispensings of oxycodone 30 amounted to 37.5 
percent,

[[Page 55496]]

its dispensings of the 15 mg tablets amounted to 17.9 percent, and its 
dispensings of all oxycodone products amounted to 63 percent of its 
total dispensings for all drugs (246,255 du).
    Moreover, the UR again showed that controlled substance were 
predominant among the most dispensed drugs, whether this was determined 
by the number of prescriptions or quantity of dosage units, with only 
carisoprodol being among the top 15 drugs dispensed. And once again, 
the financial data for the most highly dispensed controlled substances 
were blacked out.
    In sum, the UR provided nothing to dispel the strong suspicion that 
Medical Plaza was engaged in illegitimate dispensing activities. 
Indeed, as it showed that the pharmacy's dispensing of oxycodone had 
increased by a large margin from the previous UR, it should have 
reinforced this conclusion. Yet Respondent failed to report the 
December 14 order as suspicious.
    Thereafter, Respondent did not ship any more oxycodone until 
February 24, 2010, when Medical Plaza placed orders for 3,600 du of 30 
mg and 6,000 du of 15 mg. As Respondent had not obtained any new 
information since the previous UR, I find that these orders, which were 
not reported, were suspicious.
    In March 2010, Medical Plaza's oxycodone orders increased 
dramatically, with Respondent filling orders placed on six dates 
totaling 49,000 du of oxycodone 30 and 31,500 du of oxycodone. 
Significantly, the highest monthly total of orders filled during the 
previous six months was 12,600 du (November 2009), and with each 
successive order from March 18 through March 25, Medical Plaza's orders 
on a rolling 30-day basis exceeded the CSL by a factor which increased 
from three to seven times.
    While each of these orders was held by the SOMS because it exceeded 
the CSL, with the possible exception of the March 16 order (the notes 
for which refer to problems with AR \191\), in each other instance 
there is no evidence that Respondent contacted the pharmacy and 
obtained an explanation for the order. Nor did it obtain a UR on 
reviewing any of the March orders. Indeed, the orders were typically 
released with the explanation being that the UR supported the order. 
Based on both the information Respondent had obtained regarding Medical 
Plaza's dispensing practices and the fact that the orders were held by 
the SOMS because they were of unusual size and were not properly 
investigated, I conclude that the orders were suspicious and should 
have been reported but were not.
---------------------------------------------------------------------------

    \191\ While this may be an abbreviation for accounts receivable, 
the record does not establish this.
---------------------------------------------------------------------------

    As found above, in April, Medical Plaza continued to place orders, 
which, even if the CSL was increased based on the March orders 
(notwithstanding that they were not properly reviewed), still exceeded 
the CSL on a rolling 30-day basis. Indeed, on April 15, Medical Plaza 
placed orders for 42,000 du of oxycodone 30 and 10,000 du of oxycodone 
15, bringing its rolling 30-day total to 138,200 du, which was nearly 
58,000 du over the CSL. As with the previous orders (April 1 and 8), 
Respondent approved the orders but did not obtain an explanation for 
the orders and a new UR. Instead, the justification for filling the 
orders was that they were within the CSL (April 1 order), the size was 
``not excessive'' (April 8 orders) and that the ``ur supports order'' 
(April 15). None of these orders were reported as suspicious. For the 
same reasons as stated above, I conclude that these orders were 
suspicious.
    On April 23, Medical Plaza placed an order for 15,000 du of 
oxycodone 30 and 15,000 du of oxycodone 15, thus bringing its rolling 
30-day total to 140,700 du, more than 60,000 over the March shipments. 
Respondent contacted the pharmacy, and was initially told that the 
order was placed because of price, that the pharmacy's business was 
about the same, and that the pharmacy was stocking up. While Respondent 
asked for a new UR, Respondent's PIC replied that ``nothing changed'' 
and did not provide a new UR. (Indeed, Respondent did not obtain a new 
UR until August 19). Moreover, in a subsequent phone call, Medical 
Plaza now claimed that it was promoting its business.
    While Respondent deleted the orders, it failed to report them as 
suspicious. I hold that they were suspicious based on the information 
Respondent had obtained regarding Medical Plaza's controlled substance 
dispensing levels. I further hold that the orders were suspicious 
because they were clearly of unusual size and Medical Plaza's 
pharmacist gave inconsistent explanations for the orders.
    On May 3, Medical Plaza placed orders for 30,000 oxycodone 30 and 
20,000 oxycodone 15, thus bringing its rolling 30-day total of orders 
to 115,700 du, 40,000 du over its CSL (notwithstanding that the SOMS 
would recalculate the CSL based on the filled orders which were never 
properly reviewed). While Respondent documented having called the 
pharmacy, it is unclear whether it ever obtained an explanation for the 
order. What is clear is that it did not obtain a new UR. And while the 
evidence shows that Respondent reduced both orders to 10,000 du, it did 
not report the orders as suspicious. For the reasons stated previously, 
I hold that the orders were suspicious.
    Thereafter, Respondent did not fill any oxycodone orders until June 
28, when it shipped 14,000 oxycodone 30 to Medical Plaza. According to 
a SOMS note, Respondent had reduced Medical Plaza's CSL to 14,000 du. 
RX 2F, at 4 (MFR entry for June 28). Yet this order had actually been 
for 20,000 du and while Respondent called the pharmacy, there is no 
evidence as to what explanation Medical Plaza provided and it did not 
obtain a new UR. Moreover, three days later on July 1, Medical Plaza 
placed another order for 20,000 du. Thus, on a rolling 30-day basis, 
Medical Plaza had placed orders that were more than double its CSL. 
Here again, while Respondent edited the order to 14,000 du, it did not 
obtain an explanation for the order and a new UR. Moreover, it did not 
report the orders.
    Notwithstanding that the June 28 and July 1 orders were 
substantially less than Medical Plaza's orders during March and April, 
I nonetheless hold that the orders were suspicious based on 
Respondent's failure to properly investigate the orders (by obtaining 
an explanation and a new UR), as well as the information it had 
previously obtained which raised a strong suspicion as to the 
legitimacy of Medical Plaza's dispensing practices.
    While on July 22, Ms. Seiple documented that she had requested an 
updated UR, on July 30, Respondent filled an order for 10,300 du of 
oxycodone 30 even though it had not obtained a new UR. As found above, 
the order again placed Medical Plaza over its CSL by 10,000 du and yet 
no explanation was obtained from the pharmacy.\192\ See GX 22, at 145 
(SOMS note of 8/17/2010 indicating that CSL was still 14,000). And only 
four days later, Respondent filled an order for 12,200 du of oxycodone 
30, which again resulted in Medical Plaza exceeding its CSL by more 
than 8,000 du. Yet according to the SOMS, the order was

[[Page 55497]]

not even held for review. Id. Respondent did not report either order as 
suspicious. For the reasons as discussed above, I hold that the July 30 
and August 3 orders were suspicious.
---------------------------------------------------------------------------

    \192\ The SOMS notes for this date indicate that this order was 
not held for review. See GX 22, at 145. According to a note in the 
Ship to Memos, the July 1 order was returned. Id. at 141. However, 
according to the materials Respondent provided on the SOMS, ``[t]he 
rolling 30 day invoice history will include invoices and credit 
memos from the past 30 days.'' RX 78, at 60. Thus, even if the July 
1 order was returned, it still should have been counted in 
determining whether Medical Plaza's orders placed it over the CSL.
---------------------------------------------------------------------------

    On August 17, 2010, Medical Plaza placed an order for 20,000 du of 
oxycodone 30. While Respondent deleted the order, the order placed 
Respondent at 42,500 du, more than three times (and more than 28,000 du 
over) its CSL as reflected in the SOMS notes of the same date. While 
Respondent called the PIC and requested a new UR, told him that the 
order was being deleted but that he could re-order after the UR was 
reviewed, Respondent failed to obtain an explanation for the order and 
it did not report the order as suspicious. For the reasons discussed 
above, I hold that the order was suspicious.
    On August 19, Medical Plaza finally provided a new UR (eight months 
after the previous UR), which covered the month of July 2010. The UR 
showed that the pharmacy had dispensed 118,908 du of oxycodone 30 and 
41,160 du of oxycocodone 15; its total dispensings of all prescription 
products were 285,977.85 du. Thus, oxycodone 30 amounted to 41.6 
percent of its total dispensings, its dispensing of oxycodone 15 
comprised 14.4 percent, and its dispensings of all oxycodone products 
were 63.58 percent. Also, as with the previous UR, controlled 
substances were predominant among the most highly dispensed drugs (the 
only exception in the top ten being carisoprodol) and once again, 
Medical Plaza had blacked out the financial data for oxycodone 30 and 
15, as well as alprazolam 2. As with the previous URs, the July 2010 UR 
raised a strong suspicion as to the legitimacy of Medical Plaza's 
dispensing practices which Respondent ignored.
    The same day, Medical Plaza place an order for 20,000 du of 
oxycodone 30, bringing its rolling 30-day total to 42,500 du, again 
exceeding the CSL (as noted in the 8/17 SOMS note) by a factor of 
three. Respondent edited the order to 6,400 du, thus bringing the total 
filled orders to 28,900 du. Respondent did not, however, obtain an 
explanation for the order. Nor did it report the order, which I hold 
was suspicious.
    As found above, Respondent filled orders on September 1 (10,000 du) 
and 7 (8,600 du), as well as October 1 (16,800 du), each of which 
placed Medical Plaza over its CSL, even if the CSL had been 
recalculated based on the July orders. Respondent did not obtain an 
explanation for any of these orders or a new UR. According to the SOMS 
notes, the September 1 order was released because it was within the 
``monthly buying pattern'' and the order left 8,600 du which could be 
filled. However, with the September 1 order, Medical Plaza's orders 
came to 28,600 du on a rolling 30-day basis. Moreover, Respondent did 
not report the order as suspicious.
    As for the September 7 order, the SOMS note shows that it was 
``edited to meet CSL,'' even though upon filling the order, Medical 
Plaza's filled orders on a rolling 30-day basis came to 25,000 du.\193\ 
Here again, the order was not reported as suspicious. And on filling 
the October 1 order, Medical Plaza's filled orders totaled 25,400 du on 
a rolling 30-day basis. Yet the only entries in the SOMS note which 
could correspond with this order merely states ``rwr,'' an abbreviation 
for release with reservation. Respondent did not report the order as 
suspicious. Based on the information Respondent had obtained which 
raised a strong suspicion as to the legitimacy of Medical Plaza's 
dispensing practices, as well the evidence showing that each of these 
three orders exceeded the CSL and was held by the SOMS but that 
Respondent failed to investigate the orders, I hold that the orders 
were suspicious.
---------------------------------------------------------------------------

    \193\ As found above, whether the CSL was recalculated based on 
the July orders (including the one that was returned) or based on 
the August orders, the September order still exceeded the CSL.
---------------------------------------------------------------------------

    Thereafter, Respondent filled Medical Plaza's orders for oxycodone 
30 each month through March 4, 2011, shipping 16,800 du each month with 
the exception of November (when it shipped only half this amount). 
While the evidence supports a finding that each of these orders was 
suspicious based on the information provided by the URs alone, several 
of the orders were held by the SOMS. Here again, however, the evidence 
shows that the orders were released without Respondent obtaining an 
explanation for the orders. None of the orders was reported as 
suspicious.
    More specifically, the December 1 orders brought Medical Plaza's 
rolling 30-day total to 25,200 du. Yet according to a note in the MFR, 
Medical Plaza's oxycodone CSL was still at 14,000 du. As for why the 
orders were released, the SOMS notes merely include the abbreviation 
for release with reservation.
    In January, Medical Plaza ordered 20,000 du. Respondent edited the 
order to 16,800. MFR notes show that Respondent contacted the pharmacy 
and was told that the pharmacy ``use[s] quite a bit of insurance on 
oxy,'' prompting Ms. Seiple to question how the pharmacy could be 
making a profit when insurance reimbursed at a lower rate ($32) than 
what Master's charged for oxycodone ($39) and then noting that the 
pharmacy would be ``losing money.''
    The same day, Respondent obtained a new UR from Medical Plaza. 
While that UR showed that Medical Plaza's dispensing of oxycodone had 
declined from the previous UR, in contrast to the previous URs, the 
financial data for the oxycodone and other highly abused drugs were not 
blacked out. Tellingly, the data showed that far from ``losing money'' 
on its oxycodone 30 dispensings, Medical Plaza was making profits that 
were approximately three times its acquisition costs. Yet even then, 
Respondent failed to report Medical Plaza's order as suspicious. I hold 
that the order was suspicious.
    Moreover, on February 1 (10,000 du) and 2 (6,800 du), Respondent 
filled more orders by Medical Plaza. Remarkably, the most recent UR 
contains a handwritten note by Ms. Seiple which indicates that she 
reviewed the UR on ``2-2-11,'' and in an MFR note of the same date, Ms. 
Seiple wrote that ``63K of 190K dispensing is 33% of sales is oxy 30 & 
15 mg.'' Yet the same day, Respondent's compliance committee released 
the order for 6,800 du. Here again, Respondent failed to report the 
orders as suspicious. I hold that both orders were suspicious.
    Finally, on March 2, Medical Plaza placed an order for 16,800 du. 
While an MFR note of March 3 states that the account was placed on 
compliance hold pending the pharmacy providing a physician's list and 
the performance of a site visit, Respondent filled the order the next 
day. Respondent did not, however, report the order as suspicious. I 
hold that it was. And I further hold that Respondent repeatedly 
violated 21 CFR 1301.74(b) by failing to report suspicious orders.
    As for Ms. Seiple's assertions that Respondent did not report 
Medical Plaza's orders because the pharmacy was located in a medical 
center with 60 physicians and was adjacent to a medical center, and 
that this accounted for the large of volume of pain medication being 
dispensed and the percentage of oxycodone being dispensed relative to 
other drugs, Respondent's inspector specifically noted that pharmacy 
did not fill prescriptions for physicians who were primarily engaged in 
pain management. So too, in a subsequent survey, Respondent's 
representative did not document that Medical Plaza's primary customer 
based was comprised of either

[[Page 55498]]

workers compensation or pain management patients.
    As explained above, the mere presence of 60 doctors in the same 
building, without any investigation into their specialties and the 
drugs they would prescribe in the course of their respective medical 
practices does not remotely justify either the volume of pain 
medications or the percentage of oxycodone being dispensed by Medical 
Plaza relative to other drugs. Indeed, while a pharmacy's presence in a 
building with a large number of doctor's offices might explain why a 
pharmacy dispenses a larger volume of all prescription products than a 
pharmacy not located in the building, unexplained is why this would 
render the pharmacy more likely to dispense a much greater percentage 
of controlled substances, especially of oxycodone 30, a drug highly 
sought after by drug abusers, than any other pharmacy.
    As for Ms. Seiple's statement regarding the SOMS, even ignoring 
that her statement misleadingly suggests that all of Medical Plaza's 
orders post-April 1 were reviewed, the evidence shows that there were 
numerous instances in which orders were held by the SOMS but were 
released without Respondent obtaining an explanation for the order, 
which it independently verified, as well as a new UR. Moreover, while 
Medical Plaza represented that 70 to 80 percent of the prescriptions it 
filled were paid for with insurance, Ms. Seiple entirely failed to 
address why she did not question Medical Plaza as to why the financial 
data for its controlled substance dispensings were blacked out on the 
URs. And she also failed to address why Respondent continued selling 
oxycodone to Medical Plaza even after she questioned how the pharmacy 
could be making a profit on oxycodone given that insurance paid less 
than the cost of the product and the UR she then obtained showed that 
Medical Plaza was obviously making substantial profits.

Temple Terrace Pharmacy D/B/A Superior Pharmacy

    In June 2008, Respondent conducted a due diligence survey in 
response to Superior's request for an increase in the amount of solid 
dose oxycodone it could purchase. Notably, the answers provided by 
Superior were not indicative of illegitimate dispensing practices as 
Superior represented that twenty (20) percent of the prescriptions it 
filled were for controlled substances, and that 90 to 95 percent of the 
prescriptions were paid for by insurance. Superior also apparently 
represented that it did not have ``relationships with specific doctors/
clinics,'' and maintained that it had a variety of policies in place to 
prevent diversion. Yet even in this period, Superior began to present 
various indicia that it was not all that it claimed to be.
    Specifically, while Respondent requested a complete UR showing its 
dispensings of both controlled and non-controlled drugs, Superior 
provided a report showing only the top 100 drugs it dispensed. 
Moreover, during a site visit conducted several weeks later, 
Respondent's consultant found that the pharmacy shared its waiting area 
with a clinic that specialized in pain management and weight loss and 
that ``[m]any of their prescriptions originate within the clinic.'' The 
consultant's report also included two photographs showing the signage 
on the pharmacy's storefront. On top, the sign read: ``SUPERIOR 
PHARMACY  WALK IN CLINIC''; below that the sign read: ``Pain 
Management & Weight Loss.''
    Moreover, within days of the site visit, Respondent visited 
Superior's Web page. As found above, the Web page included blurbs 
promoting Superior as both a pain management clinic (``Don't live in 
pain. Trust the medical professionals at Superior Pain Clinic to help 
you enjoy life again!'') and weight loss clinic, as well as a pharmacy.
    As found above, Respondent's owner/CEO testified that in early 
2009, he had decided to cut off sales to Florida pain management 
physicians who were engaged in the direct dispensing of controlled 
substances, in part because of his putative concern over their 
unethical marketing practices. Yet here was a pharmacy and pain clinic 
occupying the same space and Respondent's compliance department failed 
to investigate the relationship between the two. This was all the more 
remarkable given that during the due diligence survey conducted by 
Respondent in June 2008, its employee had entered scribble in the 
answer blank with regard to the question of whether the pharmacy had 
``[r]elationships with specific doctors/clinics,'' thus suggesting that 
there were no such relationships. Indeed, the evidence suggests that 
Respondent did not even inquire as to the relationship between the 
pharmacy and the pain clinic until November 2009.
    Thus, as of April 1, 2009, Respondent had obtained substantial 
information which raised a strong suspicion as to the legitimacy of 
Superior's dispensing practices. As found above, in April 2009, 
Respondent filled various orders totaling 28,800 du of oxycodone 
products; in May 2009, it filled orders totaling 25,000 du of oxycodone 
30; and in June, it filled orders totaling 65,000 du of oxycodone 
products (of which 55,000 du were for oxycodone 30) and which included 
a June 24 order for 30,000 du of 30 mg, as well as 5,000 du of both 15 
mg and 10/325 mg. Respondent did not report any of these orders as 
suspicious. Based on the information Respondent had previously 
obtained, I hold that these orders were suspicious.
    Moreover, six days before it filled the June 24 order, Respondent 
finally obtained a second UR from Superior. Notably, with the exception 
of carisoprodol, each of the top twenty-five drugs dispensed was a 
controlled substance under the CSA and three of the top four drugs were 
different manufacturers' oxycodone 30 products. Also among the most 
dispensed drugs were the stronger formulations of alprazolam (1 and 2 
mg) and diazepam (5 and 10 mg), as well as other narcotics including 
oxycodone 15 and combination hydrocodone drugs. The UR further showed 
that Superior's dispensings of oxycodone 30 alone totaled more than 
60,000 du, nearly 29 percent of its total dispensings, and combined 
with its dispensings of oxycodone 15 and Endocet 10, these three 
products alone accounted for more than 37 percent of its total 
dispensings.
    Also, on June 23, Respondent conducted a due diligence assessment 
by phone during which the pharmacy was asked about its primary customer 
base and denied that it was comprised of pain management or bariatric 
patients. Yet during the site visit conducted a year earlier, 
Respondent's consultant had noted that ``many of the prescriptions 
originate within the clinic.'' Moreover, during the assessment, 
Superior apparently acknowledged that controlled substances comprised 
50 percent of its dispensings.
    Superior also provided the names of two physicians (written as a 
Dr. Mercedes and Dr. Hubang) who were working at the Superior Pain 
Clinic. While Respondent obtained a printout from the Florida DOH's 
license verification Web page, the printout was for a Dr. Merced, whose 
address was listed as being in North Carolina, and not a Dr. Mercedes. 
Moreover, there is no evidence that Respondent verified the licensure 
status of a Dr. Hubang, or of any of the doctors previously identified 
by its consultant as being pain management physicians whose 
prescriptions were being filled at Superior. While several months 
later, Respondent eventually determined that the doctor's name was 
actually Dr.

[[Page 55499]]

Mubang, there is no evidence that Respondent verified the latter's 
licensure status.\194\
---------------------------------------------------------------------------

    \194\ Ms. Seiple also asserted that ``[b]ased on [Respondent's] 
extensive investigation, it determined that the orders it shipped to 
Superior were not suspicious.'' RX 103, at 75. Notwithstanding that 
Superior was also operating a pain clinic, Respondent's ``extensive 
investigation'' apparently did not uncover that Dr. Mubang had been 
criminally charged by the State of Florida with trafficking in 
prescription drugs, even though a Google Search would likely have 
revealed this.
---------------------------------------------------------------------------

    Even putting aside the substantial information Respondent had 
acquired regarding the suspicious nature of Superior's dispensings, 
Superior's June orders were 40,000 du (and 2.6 times) above its May 
orders and its purported 25,000 du purchasing limit (as well as 36,000 
du greater than its April orders). The June orders were thus of unusual 
size, and therefore suspicious for this reason as well. Yet the orders 
were not reported to the Agency.
    As for the oxycodone orders Superior placed in July (totaling 
65,000 oxycodone 30 and 65,200 total du of oxycodone) and August 
(totaling 75,000 oxycodone 30), I hold that aside from whether the 
orders were of unusual size, pattern or frequency, the circumstances 
surrounding the Superior's operation establishes that the orders were 
suspicious. The orders were not, however, reported as suspicious.
    The next month, Respondent filled an order (September 14) for 
30,000 du of oxycodone 30 but did not report the order as suspicious. 
Moreover, as found above, on September 24, Superior placed orders for 
another 30,000 oxycodone 30 and 5,000 Endocet 10. While the latter 
order was filled, the former order triggered a compliance hold which 
was conducted by Ms. Seiple. Of note, Ms. Seiple documented that she 
had reviewed the file and noted that the pharmacy was located inside 
the clinic and that she had called the pain clinic and been told that 
if she came in, there was a pharmacy inside the clinic. Ms. Seiple then 
documented that the orders for 30,000 oxycodone 30 were being deleted 
``per Web site'' and the photographs. Yet even then, Respondent failed 
to report the orders as suspicious. And of further note, Respondent had 
known for fourteen months that the pharmacy and pain clinic shared the 
same space and jointly marketed themselves as a sort of one-stop shop.
    As found above, Respondent did obtain a new UR for the previous 
month. Notably, the UR showed that Superior's dispensings of oxycodone 
30 alone accounted for 33 percent of its total dispensings, and 19 of 
the top 25 drugs dispensed were controlled under the CSA. Moreover, 
while notations in Ms. Seiple's September 24 note indicated that 
Superior had either been placed on non-controlled status or had its 
oxycodone limit reduced to 25,000 du, on September 30, Respondent 
filled three orders totaling 30,000 du of oxycodone. Yet the orders 
were not even held by the SOMS for review and Respondent provided no 
explanation for why the orders were shipped. I find, however, that the 
orders were suspicious and that Respondent violated the suspicious 
order rule when it failed to report the orders.
    Respondent continued to fill numerous orders placed by Superior for 
oxycodone (as well as other controlled substances) through December 7, 
2009. Indeed, on November 30, Respondent filled two orders for 20,000 
du of oxycodone 30 and on December 2, it filled an additional order for 
10,000 du, even though it had determined on November 19 that Superior's 
pharmacist owned both the pharmacy and the pain clinic.
    Based on the circumstances presented by Superior, I find that each 
of these orders was suspicious and that Respondent violated 21 CFR 
1301.74(b) by failing to report the orders. As for Ms. Seiple's 
proffered explanations for why Superior's orders were not reported, as 
explained in my factual findings, I reject her explanations and find it 
especially noteworthy that she entirely failed to address why, in light 
of the information she had obtained as early as June 2008, which 
showed, inter alia, that the pharmacy and pain/weight loss clinic were 
located in the same space and that Superior marketed itself as both a 
pharmacy and pain/weight management clinic, Respondent continued to 
distribute oxycodone and other controlled substances to it thereafter. 
Indeed, Ms. Seiple's statement that the ``weight-loss and pain 
management facility [were] located in an adjacent office'' is downright 
misleading.
    Ms. Seiple further asserted that the volume and percentage of 
Superior's dispensings of controlled substances and oxycodone were 
accounted for (in part) because Superior was ``filling prescriptions 
for a juvenile in-patient facility.'' However, Respondent obtained no 
information as to the type of treatment being provided by the facility, 
the number of patients it had, and whether its patients would even be 
treated with drugs such as oxycodone 30. Indeed, this is just another 
example of Respondent's willingness to accept any superficial 
explanation which it believed would justify its continued filling of 
the pharmacies' oxycodone orders.

Morrison's

    Prior to April 1, 2009, Respondent had acquired substantial 
information that raised a strong suspicion as to the legitimacy of 
Morrison's dispensing practice. As early as its initial due diligence 
survey, Morrison's had reported that 60 percent of the prescriptions it 
filled were for controlled substances and 35 percent of the 
prescriptions were for schedule II drugs. Moreover, while the UR 
obtained in the spring of 2008 showed that Morrison's was dispensing an 
average of 63,315 du of oxycodone 30 per month (which accounted for 38 
percent of the dispensings), the next UR (which was obtained on January 
30, 2009) showed that the pharmacy's monthly dispensings had nearly 
doubled to 111,705 du.\195\ Yet there is no evidence that Respondent 
found this to be suspicious.
---------------------------------------------------------------------------

    \195\ As found above, the UR obtain in the spring of 2008 
covered the period of January 1 to April 1, 2008; the UR obtained on 
Jan. 30, 2009, covered the period of November 1, 2008 through 
January 30, 2009.
---------------------------------------------------------------------------

    In April 2009, Respondent filled Morrison's orders for 171,700 du 
of oxycodone 30 as well as its orders for 37,200 du of oxycodone 15 mg; 
in total, Respondent shipped to Morrison's nearly 218,000 du of 
oxycodone products. There is no evidence that Respondent questioned 
Morrison's as to why it was ordering 60,000 du more of oxycodone 30 
than its average monthly dispensing level and it did not report the 
orders as suspicious. Based on the circumstances presented, I conclude 
that the orders were suspicious and should have been reported.
    In May, Respondent obtained another UR. While the UR covered the 
period of January 1 through May 6, 2009, it showed that Morrison's was 
dispensing an average of 81,726 du per month of oxycodone 30. Yet 
during the month of May, Respondent shipped 141,200 du of oxycodone 30, 
59,000 du more than the pharmacy's average monthly dispensing of the 
drug.
    Here again, there is no evidence that Respondent questioned 
Morrison's as to why it was ordering this quantity and it did not 
report the orders as suspicious. Moreover, this was the second month in 
a row in which Morrison's had ordered substantially more oxycodone that 
what it was dispensing on a monthly basis. Based on the circumstances 
presented, I conclude that the orders were suspicious and should have 
been reported.

[[Page 55500]]

    The UR also showed that Morrison's was dispensing an average of 
19,463 du per month of oxycodone 15. While in June, Respondent filled 
orders totaling only 81,600 du of oxycodone 30, it also filled orders 
totaling 39,900 du of oxycodone 15, more than double the amount of its 
average monthly dispensings of this dosage. Here again, there is no 
evidence that Respondent questioned Morrison's regarding the quantity 
of oxycodone 15 it was ordering, and it did not report the orders as 
suspicious.
    In July, Respondent filled orders totaling 141,300 du of oxycodone 
30 and 48,000 du of oxycodone 15. Notwithstanding that Morrison's 
orders for the 30 mg dosage were 61,000 du (76 percent) larger and the 
orders for oxycodone 15 were nearly 2.5 times larger than its average 
monthly dispensings per the previous UR, Respondent failed to report 
the orders for either dosage as suspicious. Moreover, this was the 
third month in the last four in which Morrison's oxycodone 30 orders 
had exceeded its monthly dispensings by 60,000 du, and yet Respondent 
did not report the orders as suspicious.
    As found above, on or about August 1, 2009, the SOMS became 
operational. See RX 78, at 59. While Respondent would eventually 
terminate Morrison's on or about August 18, the day after the DI 
identified it as a customer whose oxycodone orders were of concern, 
during the first seventeen days of the month, Respondent had filled 
orders totaling 101,600 du of oxycodone 30 and 39,600 du of oxycodone 
15. Moreover, the SOMS notes establish that between August 5 and 14, 
multiple orders were held by the SOMS for review. GX 23, at 151. Yet in 
each instance the orders were released, with such reasons given as that 
the UR supported the order, the order was under the current size limit, 
or the order was ``ok to ship per'' Ms. Seiple.
    Notably, in no instance did Respondent contact Morrison's and 
obtain an explanation for the order, and it did not obtain a new UR 
until the same day the DI identified Morrison's as a customer whose 
oxycodone orders were concerning. Nor did it report any of these orders 
as suspicious even though the purpose of the SOMS was to identify 
orders of unusual size, pattern or frequency.
    As for the UR, it showed that during July 2009, Morrison's 
dispensings of oxycodone 30 had more than doubled to 196,069 du of 
oxycodone 30 (at an average prescription size of 195 du), an increase 
of more than 114,000 du from the average monthly dispensings per the 
previous UR. The UR also showed that Morrison's dispensings of 
oxycodone 15 had more than tripled to 63,658 du.
    The next day, Morrison's placed orders for 8,400 du of oxycodone 30 
and 1,200 du of oxycodone 15, as well as Endocet and methadone. While 
Respondent placed Morrison's on compliance hold and deleted the orders, 
it did not report the orders as suspicious. As explained above, 
deleting or refusing to fill an order does not excuse a distributor 
from its obligation to report a suspicious order.
    As with the other pharmacies, Ms. Seiple offered the same set of 
unresponsive explanations as she did for the other pharmacies, even 
going so far as to declare under oath that ``after Morrison's account 
was approved, [the] SOMS system identified and held any orders for 
controlled substances placed by Morrison's that deviated from its 
typical volume pattern or frequency'' when the SOMS was not even 
operational during the months of April through July 2009. As explained 
previously, I do not find persuasive her explanations as to why 
Respondent failed to report the multiple suspicious orders placed by 
Morrison's.

Summary

    The evidence shows that Respondent failed to report hundreds of 
suspicious orders placed by these pharmacies. With respect to each of 
the seven pharmacies, prior to April 1, 2009, Respondent had obtained 
information which created a strong suspicion that the pharmacies were 
engaged in dispensing illegitimate prescriptions, and while Respondent 
obtained additional information from the pharmacies at various points 
throughout the course of its dealings with them, this information 
corroborated rather than dispelled the already existing suspicion.\196\ 
Indeed, in several cases, even after Ms. Seiple documented her concerns 
as to the legitimacy of a pharmacy's dispensing practices, those 
concerns were either ignored or discounted for months thereafter.
---------------------------------------------------------------------------

    \196\ It is acknowledged that Respondent inquired as to the 
pharmacies' policies to prevent diversion. Certainly doing so is a 
necessary component of a distributor's due diligence obligations. 
However, even assuming that Respondent's inquiries were adequate, 
whether the pharmacies were actually following their policies is a 
totally different matter. Given the evidence discussed above, I hold 
that even assuming each of the pharmacies had adequate policies to 
prevent diversion, in no case did this dispel the strong suspicion 
that each of the pharmacies was engaged in illegitimate dispensing 
practices.
---------------------------------------------------------------------------

    Moreover, even after the SOMS became operational and the 
pharmacies' orders were held because they exceeded one of the criteria 
set forth in 21 CFR 1301.74(b) (typically, because they were of unusual 
size), the evidence shows that Respondent rarely investigated any of 
the orders. Rather, the evidence shows that those orders were 
frequently released without contacting the pharmacy and obtaining an 
explanation for the order, let alone independently verifying that 
explanation. Indeed, those orders were frequently released with the 
justification being that the order was supported by the UR, even though 
the URs invariably reflected dispensing levels of oxycodone and other 
controlled substances that were highly suspicious.
    Moreover, Respondent represented to the Agency that the SOMS would 
determine whether a pharmacy's orders were of unusual size by counting 
the orders on a rolling 30-day basis. While the evidence shows that in 
numerous instances, the SOMS held an order because it resulted in the 
pharmacy's orders exceeding its CSL on a rolling 30-day basis, many of 
the orders were subsequently filled because Respondent then counted the 
pharmacy's orders on a calendar-month basis. And again, Respondent 
filled the orders without obtaining an explanation from the pharmacy. 
Whether the orders were filled because they were supported by the UR, 
or because Respondent counted them on a calendar-month basis, this also 
frequently resulted in the CSL being increased even though Respondent 
had entirely failed to investigate whether there was a legitimate basis 
for the increase in the orders. This resulted in an even greater amount 
of oxycodone being shipped without being held by the SOMS for review.
    So too, the evidence shows that in other instances, an order which 
placed a pharmacy over its CSL was entirely deleted. Respondent thus 
treated the order as if it had never existed rather than report it as 
suspicious and the SOMS did not include it in calculating the rolling 
30-day total. And in still other instances, Respondent edited an order 
by reducing its size so that the pharmacy's orders did not place it 
over its CSL. Here again, Respondent failed to report these orders.
    It is true--as the ALJ noted--that under 21 CFR 1301.71(b), 
``[s]ubstantial compliance with the standards set forth in [21 CFR 
1301.72-.76] may be deemed sufficient by the Administrator after 
evaluation of the overall security system and needs of the . . . 
registrant.'' R.D. at 199-201. Nor do I dispute the ALJ's conclusion 
that perfection is not the standard for assessing Respondent's 
compliance with 21 CFR 1301.74(b). Id.

[[Page 55501]]

at 201 (``one minor oversight does not render the entire system 
ineffective'').
    Here, however, the evidence with respect to the seven pharmacies 
establishes a wholesale failure on Respondent's part to comply with the 
regulation, both as to the manner in which Respondent actually operated 
its SOMS (including the manner in which it followed Policy 6.2) and in 
its failure to report hundreds of suspicious oxycodone orders.\197\ As 
for the numerous suspicious order reports it did submit, Respondent 
produced no evidence explaining the circumstances which led it to file 
those reports, and as one of its former employees testified, ``the 
customers who were easily suspended or terminated from purchasing 
controlled substances from [it] were not the big money accounts.'' GX 
52, at 7.
---------------------------------------------------------------------------

    \197\ Throughout this proceeding, Respondent has argued that 
because it is tertiary distributor, it lacks the data to ``reliably 
compar[e] either its oxycodone distribution[s] to other wholesalers' 
distributions or the oxycodone volumes purchased by a particular 
pharmacy to the volumes purchased by an average Florida pharmacy.'' 
RX 102, at 9-10; see also RX 104, at 8 (testimony of Respondent's 
owner that its ``business model tends to make its customers' 
purchasing patterns more difficult to predict and more variable than 
they would be if [it] were a full-line wholesaler''). Unexplained by 
Respondent is why it could not have obtained the information through 
the URs it acquired from all of its customers.
     In the December 27, 2007 letter, the Deputy Assistant 
Administrator explained that ``[t]he determination of whether an 
order is suspicious depends not only on the ordering patterns of the 
particular customer, but also on the patterns of the registrant's 
customer base.'' GX 4, at 1. The SOMS, however, did not compare a 
pharmacy's orders with those of Respondent's other customers, and 
thus does not appear to be a system that complies with 21 CFR 
1301.74(b). Because the Government did not challenge the adequacy of 
Respondent's SOMS on this basis, I do not consider it.
---------------------------------------------------------------------------

    I thus conclude that Respondent has not substantially complied with 
21 CFR 1301.74(b). I further conclude that the Government has proved 
that Respondent ``has committed such acts as would render [its] 
registration . . . inconsistent with the public interest.'' \198\
---------------------------------------------------------------------------

    \198\ As explained above, I hold that the ALJ's pre-hearing 
order barring the Government from asserting any evidence of 
Respondent's failure to report suspicious orders between April 1, 
2009 and the Compliance Review was error. However, even were the 
Court of Appeals to disagree, the scope of Respondent's failure to 
report suspicious orders following the compliance review is so 
extensive and egregious that I would come to the same conclusion 
that the revocation of Respondent's registration is warranted to 
protect the public interest.
---------------------------------------------------------------------------

Sanction

    Where, as here, the Government has met its prima facie burden of 
showing that a registrant has committed acts which ``render [its] 
registration . . . inconsistent with the public interest'' and thus 
subject to suspension or revocation, a respondent must come forward 
with `` ` ``sufficient mitigating evidence'' ' '' to show why it can 
continue to be entrusted with its registration. Medicine Shoppe-
Jonesborough, 73 FR 364, 387 (2008) (quoting Samuel S. Jackson, 72 FR 
23,848, 23,853 (2007) (quoting Leo R. Miller, 53 FR 21,931, 21,932 
(1988))). ``Moreover, because `past performance is the best predictor 
of future performance,' ALRA Labs, Inc. v. DEA, 54 F.3d 450, 452 (7th 
Cir.1995), [DEA] has repeatedly held that where a registrant has 
committed acts inconsistent with the public interest, the registrant 
must accept responsibility for its actions and demonstrate that it will 
not engage in future misconduct.'' Medicine Shoppe, 73 FR at 387; see 
also Jackson, 72 FR at 23,853; John H. Kennedy, 71 FR 35,705, 35,709 
(2006); Prince George Daniels, 60 FR 62,884, 62,887 (1995). See also 
Hoxie v. DEA, 419 F.3d at 483 (``admitting fault'' is ``properly 
consider[ed]'' by DEA to be an ``important factor[ ]'' in the public 
interest determination).
    Nor are these the only factors DEA considers in setting the 
appropriate sanction. See, e.g., Southwood Pharmaceuticals, Inc., 72 FR 
36,487, 36,504 (2007); Joseph Gaudio, 74 FR 10,083, 10,094 (2009). 
Obviously, the egregiousness and extent of a registrant's misconduct 
are significant factors in determining the appropriate sanction. Cf. 
Jacobo Dreszer, 76 FR 19,386, 19,387-88 (2011) (explaining that a 
respondent can ``argue that even though the Government has made out a 
prima facie case, his conduct was not so egregious as to warrant 
revocation''); see also Paul H. Volkman, 73 FR 30,630, 30,644 (2008); 
Gregory D. Owens, 74 FR 36,751, 36,757 n.22 (2009).
    Also, the Agency has held repeatedly that `` `[n]either Jackson, 
nor any other agency decision, holds . . . that the Agency cannot 
consider the deterrent value of a sanction in deciding whether a 
registration should be [suspended or] revoked,' '' or whether an 
application should be denied. Gaudio, 74 FR at 10,094 (quoting 
Southwood, 72 FR at 36,504 (2007)); see also Robert Raymond Reppy, 76 
FR 61,154, 61,158 (2011); Michael S. Moore, 76 FR 45,867, 45,868 
(2011). This is so, both with respect to the respondent in a particular 
case and the community of registrants. See Gaudio, 74 FR at 10,094 
(quoting Southwood, 71 FR at 36,504). Cf. McCarthy v. SEC, 406 F.3d 
179, 188-89 (2d Cir. 2005) (upholding SEC's express adoption of 
``deterrence, both specific and general, as a component in analyzing 
the remedial efficacy of sanctions'').
    As found above, Respondent stipulated that it ``does not accept 
responsibility for any alleged wrongdoing in this matter'' and that 
``any evidence . . . of changes, modifications, or enhancements [it] 
made to its internal Policies and Procedures in the ordinary course of 
business,'' whether of ``its own accord'' or ``based on alleged 
guidance or communications from [DEA] does not constitute evidence of 
remedial measures.'' ALJ Ex. 8. Respondent's failure to acknowledge its 
misconduct is reason alone to revoke its registration, especially given 
the evidence which shows that Respondent's failure to report suspicious 
orders placed by the seven pharmacies was both extensive and egregious. 
See Holiday CVS, 77 FR at 62,323; see also MacKay v. DEA, 664 F.3d 808, 
820 (10th Cir. 2011); Chein v. DEA, 533 F.3d 828, 837 (D.C. Cir. 2007).
    Indeed, the egregiousness of Respondent's misconduct is exacerbated 
by the acknowledgement of its senior officials that they were well 
aware of the oxycodone epidemic then ongoing in the State of Florida. 
It also exacerbated by the evidence which strongly supports the 
conclusion that with respect to the seven pharmacies, its Policies and 
Procedures for detecting and reporting suspicious orders were rarely, 
if ever, followed. And finally, I conclude that revocation is further 
supported by the Agency's interest in deterring future misconduct on 
the part of both Respondent, which retains a second distributor's DEA 
registration, and the community of registrants. See Southwood, 71 FR at 
36,503 (citing Butz v. Glover Livestock Comm'n Co., Inc., 411 U.S. 182, 
187-88 (1973)).

Order

    Pursuant to the authority vested in me by 21 U.S.C. 824(a)(4) and 
823(b), as well as 28 CFR 0.100(b), I order that DEA Certificate of 
Registration RD0277409, issued to Masters Pharmaceuticals, Inc., be, 
and it hereby is, revoked. I further order that any application of 
Masters Pharmaceuticals, Inc., to renew or modify this registration be, 
and it hereby is, denied. This Order is effective October 15, 2015.

    Dated: September 8, 2015.
Chuck Rosenberg,
Acting Administrator.
[FR Doc. 2015-23038 Filed 9-14-15; 8:45 am]
BILLING CODE 4410-09-P