The DEA Nabs CVS and Walgreen

The Drug Enforcement Administration (DEA) continues its aggressive attack on the pharmacy supply chain with new penalties for CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG).

Full details below. Here are the headlines:

• Two Sanford, FL, CVS pharmacies will no longer be able to dispense controlled substances. Unless I’m mistaken, “revoke” means “never again.”
• A Walgreens distribution center was hit with a suspension order for shipments to six of its own pharmacies.

We only have access to the government’s facts, so no outsider can know what truly happened. However, I do believe that targeting pharmacies is a step in the right direction, because it moves closer to the patient and prescriber.

Does misery love company? Ask Cardinal Health and AmerisourceBergen.

Here are the official DEA statements:

• DEA Revokes Two CVS Retailers’ Ability To Sell Controlled Substances

• DEA Serves a Suspension Order on Walgreens Distribution Center in Jupiter, Florida

Let’s be clear. The abuse of prescription opioid pain relievers, such as oxycodone and hydrocodone, has become a U.S. epidemic that must be stopped.

As part of its approach, the DEA has been trying to disrupt the controlled substance supply chain by targeting wholesalers and manufacturers. In my opinion, the DEA is overly focused on the wrong actors in the U.S. drug distribution system. The real problems originate with consumers who abuse prescription medications, the physicians who operate pill mills, and the pharmacies that knowingly participate in diversion and abuse. Just read about the Florida "pain clinic" highlighted in July’s news roundup.

As far as I know, the DEA has never been this aggressive with the big drugstore chains. For Walgreen, the DEA presents compelling circumstantial data, although there could be alternative explanations for the shipment patterns that led to the suspension. The CVS action met the presumably-higher standard of an administrative hearing before a Chief Administrative Law Judge, who revoked the two stores’ licenses.

It’s surely not a coincidence that these two chains are also Cardinal Health’s (NYSE: CAH) largest customers. See Cardinal Health's Big Customers: Mo Money, Mo Problems.

In May, Cardinal Health agreed to a settlement with the DEA, agreeing to a two-year suspension of its Lakeland distribution center's DEA registration to ship controlled medicines. Cardinal also agreed to improve certain (undisclosed) anti-diversion procedures. In return, the DEA also confirmed it is planning no further administrative actions at other Cardinal Health facilities, although the agreement did not foreclose the possibility that the U.S. Department of Justice could seek civil fines for historical conduct covered by the settlement agreement. (source)

Meanwhile, AmerisourceBergen (NYSE: ABC) recently disclosed subpoenas from the DEA and the United States Attorney’s Office in New Jersey, requesting “….documents concerning AmerisourceBergen Distribution Company’s (ABDC's) program for controlling and monitoring diversion of controlled substances into channels other than for legitimate medical, scientific, and industrial purposes." (See News Roundup: August 2012.)

Who will be next?