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Rochester Drug Cooperative to pay $20 million fine in federal opioid settlement

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Rochester, N.Y. (WHAM) — A regional drug wholesale cooperative based in Chili has agreed to pay a $20 million fine to the federal government over a five-year period for failure to comply with federal opioid drug regulations.

Rochester Drug Co-operative (RDC) is headquartered in Rochester and distributes opioid drugs to hundreds of pharmacies across the United States. Hundreds of thousands of orders for drugs such as oxycodone, fentanyl, and hydrocodone are received and fulfilled.

Federal prosecutors are alleging that the organization failed to report suspicious orders of several opioid products to the Drug Enforcement Agency from May 2012 and November 2016. During that time period, RDC served more than 1,300 pharmacies. The organization operated two distribution centers, one in Rochester and one in Fairfield, New Jersey.

The former CEO of RDC, Laurence Doud III, was indicted on two counts of conspiracy. Doud served as CEO of RDC from 1991 until 2017.

As a distributor of controlled substances, RDC is required under federal law to design a system to report suspicious orders to the DEA. Orders of unusual size, deviate significantly from a typical order or are infrequently ordered would all qualify as suspicious.

Attorneys say that top management at RDC “prioritized attracting business, catering to existing customers, and making money above all else.” As of April 2019, it is the seventh largest distributor of drugs in the country.

A grand jury indictment alleges that Doud allowed all of this to “maximize RDC’s revenues and his personal compensation.” Doud has been charged with one count of conspiracy to distribute controlled substances, which carries a minimum of 10 years in federal prison, and one count of conspiracy to defraud the United States, which carries a maximum of five years in federal prison.

William Pietruszewski, the former chief compliance officer for RDC, was also indicted on one count of conspiracy to distribute controlled substances, one count of conspiracy to defraud the U.S., and one count of conspiracy to defraud the U.S. He faces a mandatory minimum of ten years in federal prison.

Of the 1.5 million orders shipped during the 4 1/2 year time period federal prosecutors were investigating, RDC only reported four suspicious orders to the DEA. The co-op’s revenue from sales of controlled substances nearly quadrupled during this same time period, according to federal court documents.

Federal court documents list several red flags about some of the pharmacy customers that could have triggered a suspicious order warning to the DEA but were not reported. Those included larger pharmacy customers that paid for oxycodone tablets in cash instead of insurance, disproportionately higher amounts of controlled substances being prescribed for highly-abused drugs, and prescriptions being filled for people who lived “great distances from the pharmacy.”

In one case, 88 percent of one pharmacy’s oxycodone 30 mg tablet sales were paid for in cash during a four-month period from 2013-2014. Another case had multiple doctors who were on the company’s watch list for being arrested, under state or federal investigation or suspected of prescribing in improper amounts. Reports were never filed with the DEA for either case.

The co-op set up a system designed to trigger an alert each time that a customer’s order for a controlled substance exceeded the threshold set by RDC. The threshold was set based on the average amount of purchased drugs in the previous 12 months. Based on that threshold, RDC would not fill an order for a customer that had an alert triggered until an investigation was completed.

From January 2013 until November 2016, RDC had 7,800 cases of pharmacy customers triggering an alert. Nearly all of those orders were filled without any required investigation. None of the alert cases were reported to the DEA. In some cases, the co-op raised the thresholds for customers to allow them to purchase more controlled substances.

The person in charge of managing the company’s compliance program was also in charge of managing RDC’s warehouse and tracking inventory, which would have prevented them from better managing the company’s compliance. Once the compliance team began to expand, federal prosecutors said the company hired unqualified people. During an interview by DEA agents in 2017, the COO of RDC said there was no program in place to notify the DEA about suspicious orders.

In February 2017, the Civil Division of the U.S. Attorney’s Office served a document request to RDC. This was followed by a subpoena eight months later by the Office’s Criminal Division. Following receipt of these requests, RDC reported hundreds of suspicious orders to the DEA relating to customers that it has had for years. Each year since being subpoenaed, RDC has reported at least 400 suspicious orders.

After the federal investigation, RDC reached civil and criminal settlement agreements with federal authorities.

On April 16, 2019, Joe Brennan resigned as CEO. The RDC Board accepted his resignation. John Kinney, RDC’s Chief Financial Officer, is acting CEO of the company.

“We made mistakes,” said Jeff Eller, spokesperson for RDC, “and RDC understands that these mistakes, directed by former management, have serious consequences. Not only do we pledge to honor the letter and spirit of these agreements, we are also putting into place a world-class compliance program.”

RDC will keep its DEA registration and authority to distribute controlled substances, pursuant to the agreements.

Pietruszewski pleaded guilty to one count of conspiracy to distribute controlled substances, one count of conspiracy to defraud the U.S., and one count of conspiracy to defraud the U.S. He faces a mandatory minimum of ten years in federal prison.

So far this year, the Monroe County Sheriff’s Office says 25 people have died from fatal overdoses.

“This is large scale drug dealing you haven’t thought about until this came out,” said Undersheriff Korey Brown. “It’s not just the dealer on the street, it’s just the doctors, it’s all throughout our society.”

Attorney Peter Pullano, with Tully Rinckey law firm, says this might be the first of many investigations into drug company executives.

“This is more than a warning shot, this is an all-out assault, this is a very large lawsuit,” said Pullano. “There are massive amounts of opioids going to the wrong people, and I think anybody within that food chain ought to be concerned at this point.”

State Attorney General Letitia James released the following statement Tuesday:

Today’s action by the Southern District of New York against Rochester Drug Cooperative is a welcome development. The federal government, like my office, recognizes the importance of the distributors’ responsibility to detect and prevent the diversion of opioid products, and is determined to hold accountable distributors that fail to meet that critical responsibility. We will continue to do everything in our power to tackle this crisis.

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