The wholesale drug distributor McKesson Corp. has agreed to pay $1 million to resolve allegations that on more than 700 occasions over a 27-month period a subsidiary of the company committed violations of the recordkeeping requirements of the Controlled Substances Act (CSA) and had overages (excess quantities of drugs on hand) for eight controlled substances.

The Department of Justice (DOJ) announced the settlement March 14 following an investigation conducted by the DEA Memphis Field Division.

According to the DOJ, McKesson owned and operated McKesson RxPak, a Memphis, Tennessee-based drug packaging business that maintained registrations with the DEA as a distributor and a manufacturer.

Between January 2018 and March 2020, when the subsidiary ceased operations, McKesson RxPak allegedly “engaged in a continuing pattern of recordkeeping deficiencies,” the department said.

Details of Alleged Violations

As detailed in an eight-page settlement agreement, among the violations of the CSA by the subsidiary alleged by the government were the following:

• McKesson RxPak failed to take an initial inventory of all stocks of controlled substances. An accountability audit conducted in December 2018 “revealed overages in eight controlled substances.”
• The subsidiary failed to maintain and execute DEA-222 forms for Schedule II controlled substance transactions. For example, the company failed to maintain an undetermined number of DEA-222 Copy 3 forms for its purchases of Schedule II controlled substances; to maintain at least one Copy 1 of the DEA-222 form for a sale of Schedule II controlled substances; to correctly identify the supplier’s DEA registration number on Copies 1 and 2 of DEA-222 forms “on numerous occasions, including instances where the customer’s DEA registration number was used in place of the supplier’s DEA registration number”; to timely submit Copy 2 DEA-222 forms to the agency “on numerous occasions”; and to maintain complete and accurate DEA-222 forms “on multiple occasions,” which resulted in inconsistencies between the subsidiary’s records and the information reported in the DEA’s Automation of Reports and Consolidated Orders System (ARCOS) — including discrepancies in the system between McKesson RxPak’s reported sales and customers’ reported purchases of controlled substances.
• McKesson RxPak failed to maintain separate records for each independent activity for which it was registered. For example, between August 2018 and December 2018, the subsidiary transferred 13,349 containers of Schedule II controlled substances without maintaining Copy 1 of DEA-222 and 36,313 containers of Schedule III-V controlled substances for five different drugs without maintaining invoices for them. “An updated ARCOS report showed that there was a difference of 1,671,500 dosage units when comparing what RxPak reported as sales versus what customers reported purchasing,” the government alleged. “There was also a difference of 410,000 dosage units when comparing what RxPak reported as a purchase versus what suppliers reported as a sale to RxPak.”
• The subsidiary failed to submit complete and accurate reports in ARCOS about its sales and purchases of various controlled substances. It failed to report to ARCOS sales of controlled substances to its customers as well as purchases of controlled substances from its suppliers, and it failed on multiple occasions to accurately report to ARCOS the quantity and/or types of controlled substances sold and to accurately report DEA-222 order form numbers in ARCOS.
• On one occasion, McKesson RxPak shipped controlled substances to a customer using an invalid DEA registration number instead of the customer’s current registration number.
• There were at least 12 discrepancies between the dates that the subsidiary reported in ARCOS on which controlled substances were shipped and the dates that appeared in the corresponding physical DEA-222 forms.

According to the DOJ, during the time of the alleged violations, the CSA authorized civil penalties of up to $25,000 for each violation (subject to an inflation adjustment of up to $67,627 for penalties assessed after June 19, 2020), except that recordkeeping and reporting violations were subject to civil penalties of up to $10,000 for each violation (subject to an inflation adjustment of up to $15,691 for penalties assessed after June 19, 2020).

The government and McKesson noted that the execution of the settlement agreement was not to be construed as an admission of liability on McKesson’s part.

The company did not respond to a request for comment on the settlement.