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September 19, 2000

• Introduction and Welcome Remarks

• Conference Objectives

• Overview – Controlled Substance and Regulated Chemical Diversion and Abuse Trends

• Drug and Chemical Scheduling Initiatives

• Legal Trends Regarding Chemicals and Controlled Substances

• E-Commerce Overview Electronic Transaction/DEA Diversion Web Site

• DEA Registration Fee Issues

• Suspicious Orders Task Force Initiative

Introduction and Welcome Remarks

John M. Bott, Special Agent in Charge, DEA Seattle Field Division provided the opening remarks. SAC Bott welcomed everyone to Seattle and he gave a description of the region. He gave a brief overview of the drug problem in the area. He mentioned the influx of pseudoephedrine. SAC Bott wished everyone a good time in Seattle and hoped that the conference will be a success.

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Conference Objectives

Terry Woodworth, Deputy Director, DEA Office of Diversion Control, welcomed everyone. He noted the many new faces as well as the departure of many long-term participants which he indicated could result in the loss of some degree of institutional knowledge and experience in the field of drug and chemical control. Mr. Woodworth stated that this loss highlights the need to forge a more interactive and cooperative relationship with the regulated industry in order to preserve nearly 30 years of history.

He stated that it is essential to have an open relationship with industry if further progress is to be made against our mutual goal of fighting drug and chemical abuse. Mr. Woodworth advised that the theme for the conference was "Unity of Purpose". He indicated that the agenda included some new and old challenges requiring cooperative efforts and careful scrutiny in order to protect the health and safety of the people of the United States from the misuse and abuse of controlled substances and regulated chemicals.

Mr. Woodworth discussed the purpose of the conference in view of the fact that a number of law firms who sought registration for this conference were denied. He explained that one essential and critical mission of the Office of Diversion Control is to interpret and communicate regulatory policy to the registrant population. This conference has always been a forum strictly limited to industry officials and representatives. Our liaison efforts, which are multi-faceted, have created a cooperative environment whereby the majority of DEA registrants voluntarily comply with the law ands its regulations. Such conferences provide an opportunity for registrants and their employees to ask questions and to seek DEA advice in order to initiate better programs to prevent diversion. These conferences provide a venue where both registrants and DEA can engage in candid discussions concerning emerging trends, and existing regulations and policies which may require change and clarification. These conferences are "hands-on" meetings designed to educate industry employees.

Some in the industry designate their corporate counsel to attend the meeting but the vast majority send their regulatory, administrative, security, production or operations personnel. Mr. Woodworth stated that due to the paramount need for candor and limited seating this conference was not the proper forum to address the concerns nor to educate consultants and attorneys not representing industry

Mr. Woodworth reviewed the agenda pointing to some changes that are in progress such as the review and analysis of DEA’s approach to regulatory and policy processes. The goal is to establish unambiguous, understandable policies and regulations which are proactive. DEA wishes its regulations to be current, written in plain language, adaptable to rapid technological changes and to frequent changes in the regulated industry.

DEA is defining and refining our regulatory methodology with the objective of improving customer service and the management of its operations. It is important to DEA that the public policy developed be based upon the most rational construction of the facts and it is recognized that this is an area where knowledgeable experts from both Government and industry must play a vital role. He requested that the participants feel free to raise questions about any regulations or policies that appear unclear, burdensome, or otherwise in need of revisions.

Mr. Woodworth thanked all that participated in the early phases of the e-commerce project. Those who were interviewed, answered questionnaires, and willingly contributed to the project were recognized. He specifically thanked and commended NWDA and NACDS as well as McKesson, Abbott and Walgreens, who have actually started to PKI-enable their systems in connection with the project. This is a monumental effort, which eventually will save time, effort, and money at all levels.

Mr. Woodworth discussed the issue of marketing controlled substances directly to the public. He reminded the participants that controlled substances legally manufactured by the pharmaceutical industry are lifesavers. However, these drugs have by definition, an abuse potential and can do harm if not used properly. Some companies have been promoting some of these drugs directly to the consumer. This runs counter to the philosophy of both the government and industry held for over 30 years. The nature of our free market system is that, absent appropriate controls, some commercial interests will expand production and increase sales to meet that demand. He requested voluntary cooperation, asking the industry not to participate in advertising controlled substances directly to the consumer.

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Overview – Controlled Substance and Regulated Chemical Diversion and Abuse Trends

William Coach, Statistician, DEA Liaison and Policy Section provided an overview of drug abuse trends relying in large part to statistics from The Drug Abuse Warning Network (DAWN). This data provided information from drug-related hospital emergency episodes. The following points were highlighted.

1. Cocaine remains the dominant drug of abuse among controlled substances in most cites. It accounts for about one in three of all estimated emergency room episodes.
    
2. Marijuana/hashish is the second most reported drug among controlled substances, exceeding heroin for the first time. This is probably the result of higher potency and increasing use of it in combination with drugs such as PCP, crack, heroin, and embalming fluid.
    
3. Licitly manufactured drugs play a significant role in the abuse picture. There are 11 among the top 20 controlled substances and they account for approximately one in four mentions.
    
4. Benzodiazepines are the most widely abused licit drugs. Clonazepam (Klonopin®), street name ‘pins’, has shown the most dramatic increase in abuse.
    
5. Excluding benzodiazepines, hydrocodone is the licitly manufactured drug which is most reported. It has shown a gradual increase trend since 1993.
    
6. Club drugs such as GHB and MDMA (ecstasy) have shown increasing levels of abuse.
    
7. Methamphetamine related emergencies declined significantly in 1998. However, there was a slight increase in all four quarters in 1999.

Elizabeth Willis, Deputy Chief, DEA Drug Operations Section reported on abuse trends. She discussed the various reasons why individuals choose to abuse pharmaceuticals drugs instead of illicitly manufactured substances. Many individuals choose pharmaceuticals because they know the product is safe, costs less, and has less counter effects. She explained that there are over one million registrants. It was reported that diversion does occur at the distributor and manufacturer level, but the majority of diversion is taking place at the retail level. Diversion at the retail level involves patient "doctor shopping," prescription forgery, indiscriminate prescribing, self-abuse, illegal distribution and customer theft. She provided examples of cases in Los Angeles and Miami where excessive purchase reports lead to the prosecution of individuals dealing with forged prescriptions.

Diversion at the distributor and manufacturer level is still a problem and it involves employee theft and in-transit theft. Security is crucial because we are responsible for protecting the public’s health.

We are now seeing diversion involving the Internet at domestic and foreign sites. DEA is working with state and local agencies as well as international governments regarding this issue.

Mrs. Willis stated that the most commonly diverted controlled drugs are hydrocodone products, benzodiazepines, oxycodone product, hydromorphone products, fentanyl patches, ketamine and GHB/GBL. In addition, it was pointed out that some popular drug combinations include SOMA with hydrocodone, alprazolam, oxycodone, codeine cough syrups and methadone, pentazocine with methylphenidate, benzodiazepines with narcotics, and clonidine with narcotics.

John Uncapher, Chief, DEA Domestic Investigations reported on diversion abuse trends of regulated chemicals. DEA is seeing an increase in the use of methamphetamine and an increase in the spread of illicit production of "meth" in clandestine laboratories. Illicit production of "meth" is most prevalent in California and in other parts of the West. However, clandestine production of "meth" is now found in 40 states.

Mr. Uncapher explained that pseudoephedrine is the precursor of choice to make methamphetamine. As a result, diversion of this chemical has greatly increased. He indicated that combo-ephedrine and single entity ephedrine are the next precursor of choice.

More dietary supplements containing ephedra and ephedrine are being found at methamphetamine clandestine laboratories. In addition, blister packs are being found at these laboratory sites.

Mr. Uncapher stated that more and more pharmacies are being approached for large quantities of pseudoephedrine from several large bottles to cases.

Mr. Uncapher discussed GBL and how an increase in abuse led to regulations regarding this chemical. GBL is gamma-hydroxybutyrolactone and it became a List I chemical on February 18, 2000 with a 0 kg threshold. It is diverted to make GHB (gamma-hydroxybutyrate) and it produces euphoric and hallucinogenic states when abused. It is also used by body builders and as a date rape drug.

GBL can be directly ingested and is converted to GHB by the body. It was previously sold as a dietary supplement for body builders before it was regulated. There is no licit household use for GBL.

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Drug and Chemical Scheduling Initiatives

Frank Sapienza, Chief, DEA Drug and Chemical Evaluation Section announced that quotas have been issued and the notification letters have been mailed to industry. He provided an overview of the administrative scheduling Petition Review Process and reported that the following federal scheduling actions took place in 1999: Dronabinol Product (Marinol ^® ) from a schedule CII to CIII, ketamine (Ketalar^® , Ketaset ^® ) is a CIII substance, modafinil (Profigil^® ) is a CIV stimulant, and Zalephon (Sonata^® ) is a CIV substance.

Mr. Sapienza indicated that DEA is concerned about products going to Mexico and then returning to the U.S. for re-sale.

He spoke on the scheduling action involving GHB. On March 13, 2000, DEA placed GHB, including the IND product, into schedule I with schedule III security requirements. If and when a GHB product is approved for marketing, it will be placed in schedule III with schedule I penalties. He indicated that the GHB being found at illicit laboratory sites did not come from the legitimate manufacturing industry. GHB overdoses are occurring in the U.S. and we have at least 70 reports of theft of the chemical. GBL and i,4Butaneidaol are the products used to make GHB. 

Mr. Sapienza stated that on February 2, 2000 DEA published an advanced Notice of Proposed Rulemaking to solicit information from the phosphorus industry in regards to red phosphorus. It appears that red phosphorus might only be controlled in bulk quantities. He talked about the potential control of bulk ephedrine, pseudoephedrine and phenylpropanolamine where bulk material will placed in schedule II.

Mr. Sapienza concluded his presentation encouraging industry to contact DEA on the various topics discussed.

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Legal Trends Regarding Chemicals 
and Controlled Substances

Brian Bayly, Acting Chief, Diversion and Regulatory Litigation Section, DEA Office of Chief Counsel discussed issues involving List I chemical handlers registrations. He discussed the Order to Show Cause process. His unit will handle the litigation of orders to show cause. He provided an overview of the criminal and civil penalties involved when List I registrants do not comply with the Controlled Substance Act (CSA) and its implementing regulations. Mr. Bayly spoke on asset forfeiture issues. He indicated that local Assistant United States Attorneys handle cases involving civil, criminal and asset forfeiture.

Mr. Bayly stated that an Administrative Final Order is law. There have only been four Final Orders involving List I chemicals. He mentioned that some immediate suspensions of List I Chemical registrations have recently occurred and several show causes will be coming down the pike. Since there are no Final Orders in these cases, DEA can’t comment on them nor can it predict the outcome.

Mr. Bayly stated that the suspicious order reports have been very crucial to DEA efforts to stop the diversion of List I chemicals. He thanked industry for assisting DEA in these efforts.

Mr. Bayly provided a handout that gave a sample of final orders regarding controlled substances and List I Chemical cases pertaining to reporting requirements and identification of customers.

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E-Commerce Overview
Electronic Transaction/DEA Diversion Web Site

James A. Pacella, Chief, DEA Registration and Program Support Section provided an overview of the DEA Diversion Website, which can be accessed at www.deadiversion.usdoj.gov. Mr. Pacella indicated that approximately 30,000 hits per week are made to the website. Mr. Pacella stated that the website is a great place to get updated information on the Diversion program, DEA registration, ARCOS, DEA publications, reporting requirements, controlled substance schedules, Federal Register notices, electronic commerce initiatives, and meetings and events.

Patricia M. Good, Chief, Liaison and Policy Section reported on e-commerce issues involving the DEA Controlled Substance Ordering System (CSOS). Ms. Good indicated that the main goal with this project is to give industry what it needs in regard to the DEA Order Form 222 and still keep the closed recordkeeping system. She discussed how the CSOS will work and what is required to PKI-enable an ordering system. She explained that the CSOS would join existing electronic ordering application and respective operating system with the ability to digitally sign controlled substance orders. This is accomplished by computer software that "calls" the digital signature capability.

DEA’s contractor has been surveying industry and conducting interviews on this subject. DEA or a contractor will be the Certificate of Authority (CA). The CA will verify registration. The CA will follow the policy set regarding the Federal Information Processing DEA Standard (FIP 140-1).

All enrollees in the PKI will have a public key which will be placed in a directory which is similar to a telephone book. The registrant will place its order electronically. Everyone authorized to place orders will have a private key that will allow the sender to digitally sign the order. The sender will be verified by the CA and then the order may be filled.

The contractor has tested Commercial Off the Shelf (COTS) products that have Certificate Authority software, toolkits and third party products that provide electronic interchange.

Ms. Good again stated that the goal is to join a company’s current system and add software that will allow it to talk with the CA through the DLL (data link library) to each other.

CA’s will be required to provide a listing of those digital certificates that have been revoked.

This revocation list would not imply that any punitive action had taken place. Digital Certificates must be revoked (and new ones issued) any time there is a change of status, lost or compromised private key, or loss/expiration of DEA registration.

Ms. Good indicated that McKesson, Abbott, and Walgreens have volunteered to test this new technology. This new technology will benefit all of us down the road.

Ms. Good explained that this program is strictly voluntary. Companies might have to upgrade or change their computer systems. The digital certificate will be equivalent to the DEA 222. The certificate must accompany the electronic order much like the paper 222 does today with the current ordering system.

Ms. Good indicated that the planned workshop would show how the system works. Regulations will need to be changed. A handout regarding the CSOS was provided which discusses all the issues fully.

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DEA Registration Fee Issues

Patricia M. Good, Chief, Liaison and Policy Section reported on DEA Registration Fee issues. She explained that in1993 the CSA was amended to require the collection of registrant fees to cover the cost of the program. A fee was set to cover all but the chemical program’s activities. A lawsuit was filed and a District Court ruled in favor of the registrant fee. In 1996, a published Notice of Proposed Rule Making (NPRM) explained the items that would be funded and how they related to registrant activities.

Ms. Good further explained that in the initial years, a surplus accrued in the account. DEA initially established a task force to develop a refund plan. However, changes in the budgetary process and a mandate that DEA deposit the first $15 million collected into the General Treasury Account, along with Congressional rescissions, have effectively eliminated the surplus. DEA has been conducting a thorough review of all expenditures. In FY 2001 a significant portion of the rescission is expected to be returned to the account. This will barely meet the program’s authorized spending authority. It is likely that a new fee structure will need to be developed to meet current budget authority which has increased over the 1993 amounts used to calculate the existing fees.

The chemical fees are not mixed with the controlled substances registration fees.

A question was asked regarding what amount was to be refunded. Ms. Good indicated that the refund would have been approximately $7.00 per registrant.

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Suspicious Orders Task Force Initiative

Patricia M. Good, Chief, Liaison and Policy Section reported that the Suspicious Orders Task Force (SOTF) was established as a result of a mandate by Section 504 of Public Law 104-237, The Comprehensive Methamphetamine Control Act of 1996 (MCA). The SOTF is preparing recommendations concerning additional guidelines to be used by the regulated chemical industry in defining a suspicious order that must be reported to the DEA under 21 U.S.C., section 830(b)(1)(A).

The SOTF is comprised of members of industry, regulatory agencies, and federal, state and local law enforcement. The recommendations from the task force fall into the three following general areas: Improvements in the definitions of "suspicious", improve communications at all levels, and improve information and data transfer.

DEA has worked hard to respond to the SOTF’s recommendations. DEA’s Chemical Handler’s Manual has been revised to reflect changes in the CSA and incorporates SOTF revised language. DEA is negotiating with U.S. Customs Service to aid in verifying actual import/export quantities. DEA Office of Diversion Control has implemented its own Internet Web Site which will include some of the information requested by the SOTF.

In addition, the Office of Diversion Control has modified its policies to allow for electronic monitoring for suspicious orders. DEA requested funding to implement computer enhancements. The request did not survive the budget process for FY 2000 or FY 2001.

DEA’s Office of Diversion Control has instituted Working Groups to enhance communications between affected parties. DEA has published the list of suspicious order indicators on the Diversion Internet Web Site and in the Chemical Handler’s Manual.

Regional meetings have been established through local agencies. DEA is in the process of developing a map of methamphetamine "hot spots" for publication and inclusion on the Internet Site. DEA has modified the timetable for conferences and meetings to include topics regarding the MCA. Ms. Good pointed out that this meeting is the first such enhanced conference.

Ms. Good indicated that there are some unresolved issues that were addressed by the SOTF. She stated that the Attorney General has made no decision regarding import quotas nor has she made a decision regarding the panel of experts tasked with determining legitimate medical need.

Ms. Good stated that the Attorney General is very interested in the SOTF. Ms. Good thanked members of industry for doing an outstanding job in complying with the regulations.

Ms. Good concluded her presentation by saying that we are seeing a dramatic growth in pseudo imports. She posed several questions including; What has caused this demand? What factors can DEA rely on to determine what is the cause of the increase?

Detailed results of the work of the SOTF can be found in:

Report to the U.S. Attorney General (Published October 1998)

Supplemental Report to the Attorney General (Published November 1998)

The reports to the Attorney General are available on DEA’s Internet Site (www.deadiversion.usdoj.gov) or by writing to Liaison and Policy Section, Washington, D.C. 20537.

Mike Shortis, Staff Coordinator, Policy Unit reported that a suspicious order report is required by the Chemical Diversion and Trafficking Act of 1988 and is important to DEA in limiting the listed chemicals available to the illicit traffic. Mr. Shortis discussed 21 Code of Federal Regulations, Sections 1310.05(a), 1310.05(a)(1) and 1310.05(a)(3). He stated that a regulated transaction is a distribution, receipt, sale, importation or exportation of a threshold amount of a listed chemical, whether based on a single transaction or cumulative transactions within a calendar month.

Mr. Shortis stated that each regulated entity is most familiar with its customers and the circumstances surrounding the orders it processes. The chemical industry must use its best judgement in identifying a suspicious order. Mr. Shortis pointed out that if a registrant ships a suspicious order, the registrant may be liable for criminal, civil, or administrative action if that listed chemical is found to have been used in the illicit manufacture of illegal drugs. It is up to industry to monitor the customers. Each registrant should judge its own area for the level of the security necessary.

Mr. Shortis indicated that the SOTF report concluded that while the term "suspicious order" has some general meanings, it also has different meanings at different levels of the manufacturing and distribution chain. It is suggested that guidelines be developed for different groups such as importer and manufacturers, wholesale distributors and retail distributors.

The following are some of the examples Mr. Shortis provided of things that might raise a red flag to a registrant that an order is suspicious:

• A customer who is vague about his firm’s address, telephone number, and reason for desiring a listed chemical.
   
• A customer who wants a listed chemical shipped to a post office box or address other than the usual business address.
   
• A customer who prefers to pay by cashier’s check, postal money order, etc.
   
• A customer who refuses or is reluctant to establish a credit account or provide purchase order information.
   
• A customer who wants to pick up chemicals outside of normal practice in the supplier’s experience.
   
• An established customer who deviates from previous orders or ordering methods.
   
• A customer who has difficulty in pronouncing chemical names.
   
• A customer who does not want to tell you what area they supply.
   
• A customer who does not want to tell you what volumes they distribute.
   
• A customer who refuses to tell you who their customers are.
   
• A customer that purchases amounts of pseudoephedrine products that are inconsistent with purchase patterns for other OTC products.
   

Mr. Shortis indicated that the red flags should be viewed in the totality of the proposed order or transaction. No individual indicator is independently a suggestion that a given order is suspicious and/or reportable to DEA.

A distributor’s obligations do not end with the reporting of suspicious orders. Distributors should delay or not ship orders of listed chemicals which are truly considered suspicious.

Mr. Shortis pointed out that 21 USC, Section 842(a)(11) was added to the Controlled Substances Act of 1970 by the MCA of 1996. It provides new civil penalties for "distribution with reckless disregard" of responsibilities regarding listed chemicals and items listed on the Special Surveillance List. These penalties are in addition to possible criminal charges which could include up to 20 years in prison, criminal fines and injunctions against further handling of listed chemicals.

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