Mallinckrodt To Pay $35 Mln Fine For Failing To Report Suspicious Order

(RTTNews) - Mallinckrodt LLC agreed to pay $35 million to settle allegations that it violated certain provisions of the Controlled Substances Act (CSA) that are subject to civil penalties, the Justice Department and the Drug Enforcement Administration announced today.

This is the first settlement of its magnitude with a manufacturer of pharmaceuticals resolving nationwide claims that the company did not meet its obligations to detect and notify DEA of suspicious orders of controlled substances such as oxycodone, the abuse of which is part of the current opioid epidemic. These suspicious order monitoring requirements exist to prevent excessive sales of controlled substances, like oxycodone in Florida and elsewhere.

The settlement also addressed violations in the company's manufacturing batch records at its plant in Hobart, New York. Both sets of alleged violations impact accountability for controlled substances, and the compliance terms going forward are designed to help protect against diversion of these substances at critical links in the controlled substance supply chain.

The government alleged that Mallinckrodt failed to design and implement an effective system to detect and report "suspicious orders" for controlled substances - orders that are unusual in their frequency, size, or other patterns. From 2008 until 2011, the U.S. alleged, Mallinckrodt supplied distributors, and the distributors then supplied various U.S. pharmacies and pain clinics, an increasingly excessive quantity of oxycodone pills without notifying DEA of these suspicious orders.

Through its investigation, the government learned that manufacturers of pharmaceuticals offer discounts, known as "chargebacks," based on sales to certain downstream customers. Distributors provide information on the downstream customer purchases to obtain the discount. The groundbreaking nature of the settlement involves requiring a manufacturer to utilize chargeback and similar data to monitor and report to DEA suspicious sales of its oxycodone at the next level in the supply chain, typically sales from distributors to independent and small chain pharmacy and pain clinic customers.

The government also alleged that Mallinckrodt violated record keeping requirements at its manufacturing facility in upstate New York. Among other things, these violations created discrepancies between the actual number of tablets manufactured in a batch and the number of tablets Mallinckrodt reported on its records. Accurate reconciliation of records at the manufacturing stage is a critical first step in ensuring that controlled substances are accounted for properly through the supply chain.

Meanwhile, Mallinckrodt confirmed that it has finalized the agreement reached with the U.S. Drug Enforcement Administration (DEA) and the U.S. Attorneys' Offices for the Eastern District of Michigan and the Northern District of New York, respectively, to settle previously disclosed investigations relating to the company's suspicious order monitoring program, reporting, record keeping and security measures related to manufacturing and distribution of controlled substances.

In reaching this resolution, the company denies government allegations that it violated applicable laws in connection with its suspicious order monitoring program, and the settlement contains no admission of liability for civil penalties for relevant conduct. But, Mallinckrodt will pay $35 million to resolve all potential claims as part of the agreement.