Reverse Distributors Working Group
Training Room, DEA Headquarters
July 9, 2003; 1:30 pm

Patricia M. Good, Chief of the Liaison and Policy Section (ODL), welcomed more than 30 industry representatives present. Ms. Good told the group that reverse distributors deal with what many people consider as waste. What some see as waste many others see as high value merchandise. Pharmaceutical drug diversion is on the upswing. Hydrocodone products, oxycodone products, methadone tablets, benzodiazepines, and ketamine are just some of the pharmaceutical drugs that have a high street value. That is why there are strict accounting procedures for reverse distributors.

Ms. Good announced that the long-awaited interim final rule on reverse distributors will be published on Friday, July 11, 2003. DEA welcomes comments from industry during the 60-day comment period that will follow publication. Comments that were submitted years ago when the rule was first proposed have been addressed in the interim final rule. Ms. Good said that the meeting will cover the changes to the proposed rule that will be found in the interim final rule. Ms. Good introduced Mr. Andrew McFaul, Chief of the Regulatory Drafting Unit.

Mr. Andrew McFaul, Chief of the Regulatory Drafting Unit, began by highlighting the role of reverse distributors in the pharmaceutical distribution system. Mr. McFaul emphasized the high value of the controlled substances that reverse distributors handle. Even damaged or dirty controlled substances can be sold for high amounts. As the number of available disposal sites has decreased, the demand for an efficient and cost-effective means of disposal of controlled substances has become increasingly important. It is equally important that the industry operate under a consistent set of requirements and procedures to ensure that diversion does not occur.

Mr. McFaul stated that the interim rule, which will be published in the Federal Register on Friday, July 11, 2003, can be examined in the Federal Register reading room on the day before its publication. The rule will be on the Federal Register website, www.access.gpo.gov, on July 11, 2003. It will be on the DEA website at

www.deadiversion.usdoj.gov>FederalRegister on Monday, July 14, 2003. The regulations will become effective 30 days after publication, on August 11, 2003. A 60-day comment period will begin on July 11, 2003. DEA will take comments into consideration and modify the interim final rule if warranted. Readers can learn about previous comments and DEA’s treatment of them in the interim final rule

After reviewing comments on the proposed rule, DEA recognized a need to codify the existing regulations. DEA designed a new business activity, reverse distributors. The principal reason for creating a new category of business activity is to clarify ARCOS reporting requirements for the new business activity. All current reverse distributor registrants will have to change to the reverse distributor registration category with submission of their next renewal. This can be accomplished by attaching a note or letter to the renewal application stating the registrant’s intent to register as a reverse distributor.

The regulations for reverse distributors are generally the same as those for distributors. Exceptions are noted. A reverse distributor is defined in the new regulations as a registrant who receives controlled substances acquired from another DEA registrant for the purpose of:

▪ returning unwanted, unusable, or outdated controlled substances to the manufacturer or the manufacturer’s agent; or

▪ where necessary, processing such substances or arranging for processing such substances for disposal.

Reverse distributors can only accept controlled substances from DEA registrants, which is consistent with the closed distribution system for controlled substances. Reverse distributors who receive unsolicited and unexpected controlled substances from non-registrants should coordinate with the local DEA office on the correct procedure to follow. Reverse distributors can accept controlled substances from registrants going out of business. Those controlled substances are part of the closed distribution system and DEA’s reports system will recognize the expired registration numbers used when the substances were first acquired. A high number of returns from expired registration numbers would draw attention.

Inventories and Accountability: All registrants must be able to document and account for all controlled substances on hand. DEA discussed the use of estimates by reverse distributors, noting that the new regulations allow them to estimate the contents of a container, rather than requiring an exact count. However, in subsequent discussion, it was noted that the estimated contents provision applies only for inventory purposes. Actual records of receipts and distributions must reflect the exact amount of controlled substances received or distributed. Many participants indicated that they would continue to use an exact count method for inventories, given the need for such counts for recordkeeping purposes.

ARCOS Reporting: All reverse distributors must submit ARCOS reports on a quarterly basis. DEA does allow reports to be submitted monthly on request. For compounded products, infusion products, and other products that do not have an NDC number, the ARCOS unit will assign a number. Codes for such products include the letter "G" and are available on the DEA Diversion Control internet site at www.deadiversion.usdoj.gov/ ARCOS>National Drug Code Dictionary.

Mr. McFaul listed three areas in which work remains to be done:

1) One issue is the procedure for describing partial quantities. The customer and the reverse distributor need a common language for describing partials and a method for resolving discrepancies. A discrepancy of 15-20% between the customer’s report and the quantity received by the reverse distributor may appear insignificant but if the variation occurs with regularity, it can become significant.

2) The industry and DEA need to develop the means for reverse distributors to participate in the planned electronic ordering system.

3) Reverse distributors are currently required to report to ARCOS. However, the issue is not yet set in stone and there remains room for discussion regarding whether continued reporting should be required.

The closed distribution system and the new electronic systems under development are designed for distributors, not for reverse distributors. These systems underscore the unusual circumstances for reverse distributors within the closed system of distribution of controlled substances. Under normal circumstances, a purchaser orders the requested controlled substances from a distributor who then ships the order. The product is packaged in amounts that can be easily quantified and accounted for. For a reverse distributor, the roles are reversed: the distributor (a reverse distributor’s customer) informs the purchaser (the reverse distributor) what controlled substances will be shipped and therefore, what the purchaser must document on the order form or invoice. Often, the packages are partials, making documentation and accountability of what has been distributed difficult. In order for the system to work with a minimum of errors and problems, a system of standard operating procedures for all participants needs to be developed and agreed to by all participants.

Reverse distributors can be aware of developments by monitoring the diversion control website, www.deadiversion.usdoj.gov/ . Rules normally appear on the website within 24 business hours of publication.

Mr. McFaul and participants discussed drug destruction. Controlled substances retain high value even when mixed with other unsavory substances or altered in appearance or form. A controlled substance is successfully destroyed when it is chemically irretrievable. Incineration is a reliable destruction method but it is not always available. It is not the only destruction method that DEA approves. If the local authorities approve, flushing into the water system is acceptable. DEA will decide the acceptability of other methods on a case by case basis. DEA rejected a recent proposal to shred controlled substances for destruction. When DEA’s scientific staff reviewed the proposal, they determined that someone could extract controlled substances from the shredded material. Although the decision will usually be made in DEA Headquarters, reverse distributors should contact their local offices first. Ms. Good invited new destruction proposals from the industry and offered to set up a meeting with DEA’s scientific staff to evaluate effectiveness.

Space on the DEA Form 41, Registrants Inventory of Drugs Surrendered, is limited. Electronic forms may alleviate the situation. Registrants may change the font on the forms but not any content. In response to a comment that the form does not include space for the reverse distributor to record the name and location of the registrant from whom the controlled substances were received, Mr. McFaul noted that the DEA 41 should not be used as a record of a distribution between a customer and the reverse distributor. The reverse distributor is the "owner" of the controlled substances and responsible for records of what was received and disposed. Therefore, it is the reverse distributor’s address that should appear on the form, not the pharmacy’s address.

Listed chemicals are not controlled substances. Therefore, reverse distributors do not need to complete records or provide reports to DEA of listed chemicals that they receive and dispose of. They can choose to destroy returned cough and cold products that contain listed chemicals or to return them to the manufacturer.

The participants asked a variety of questions. Ms. Good recommended that reverse distributors should discuss uncertain situations with their local DEA office. Mr. McFaul reminded participants that items diverted from licit distribution channels usually sell for a fraction of their legitimate price, but the opposite is true for diverted controlled substances, as they sell for a very high price. It is most important to keep records and ensure an appropriate level of control as the risk of diversion is very high.

Mr. McFaul and Ms. Good described the comment period for the participants. The 60-day comment period for the interim final rule will begin on Friday, July 11, 2003, the day that the interim final rule will be published. Everyone is invited to submit comments. DEA considers each comment, and will modify the final rule as appropriate. DEA’s response to comments can be found in the discussion section of the Federal Register notice. After the 60-day comment period, the final rule will go to the Department of Justice and the Office of Management and Budget prior to publication in the Federal Register (probably a six-month process).

Mr. McFaul spoke about the Electronic Order Form Project. After review of the order and signature process, DEA developed a basic approach for the returns industry in which the customer will generate a return authorization form and submit it to the reverse distributor who will verify that it is complete. Once verified, it is automatically signed and generated back to the customer. All of this is done electronically in a matter of minutes. Security assurance is provided by public key infrastructure technology (PKI) when DEA issues a digital certificate to the registrant and receiver. The digital certificate is attached to the document and validates all signatures and registrant information for both parties.

Ms. Good gave a brief background on the need for the electronic orders. Currently the DEA Official Order Form, DEA Form 222 is a three part paper form. Copies 1 and 2 are sent to the shipper and copy 3 is retained by the purchaser. Following shipment, copy 2 is sent by the shipper to the local DEA office. A few years ago, DEA began research into an electronic medium that would provide a level of assurance that is equivalent to the paper order form. PKI serves this requirement by providing built in security, digital certificates, an irrevocable record and secure validity. The final rule will be published in about 90 days. We have worked closely with industry and do not expect any major difficulties.

Mr. McFaul described the efficiencies of electronic orders for reverse distributors: A customer of the reverse distributor will generate an electronic order and send it to the reverse distributor. The reverse distributor’s electronic system will validate, sign and return the order. This will eliminate traditional mail. In order to take advantage of this system, both parties need technical infrastructure, software and a trusted environment.

Robert Ryan, from Returns Industry Association (RIA), commented that he has fundamental concerns about reverse distributors and electronic ordering. The concept is good but too difficult to merge with a legacy system used by many reverse distributors. If other companies have concerns about this, Mr. Ryan suggested that they contact RIA for further discussion.

Ms. Good introduced three DEA field representatives to discuss problems they have observed.

Ann Carter
Diversion Program Manager
Philadelphia Field Division

As the industry is evolving it is important to learn how to run a successful reverse distribution process. Ms. Carter said that it is crucial that a reverse distributor not take on more than it can handle. There is a high demand for the services that reverse distributors provide. Reverse distributors should plan carefully before expanding and prepare for contingencies. There were four reverse distributors in Philadelphia; only two now remain. It is important to look at the reasons the two failed. One company only accepted schedule III and IV substances and also did not have an advanced notification system. This company’s security, forms, and recordkeeping were inadequate. They also had an unsupervised and unstaffed warehouse where drugs accumulated over six to twelve month periods. Drug destruction, at six or twelve month intervals, was too infrequent. Reverse distributors should contract with a destruction company for periodic service. It is necessary to have accountability for all controlled substances. If records do not accurately reflect stock on hand, it is not just a recordkeeping problem; it is also a security problem with an increased opportunity for diversion.

Myra Lee
Diversion Investigator
San Francisco Field Division

DEA conducts unannounced inspections to review records, inventory and security. For an inspection to go smoothly, records must be clearly and properly completed. A few hints to doing this well are: make sure the shipping date is the date the drugs were actually sent back, and the receiving date is the date when the drugs were actually received. Partial containers of controlled substances must accurately reflect the total number of dosage units in accordance with the CFR. Ms. Lee encouraged reverse distributors to call the local DEA office with questions.

Robert Brown
Group Supervisor
New York Division Office

DEA’s visit to a firm is an infrequent event. DEA relies on reverse distributor registrants to exercise the right controls and to keep controlled substances secure. Reverse distributors need to make diversion opportunities difficult. This includes maintaining proper security, having a system in place to detect diversion, and restricting access to storage areas to a limited number of authorized personnel. Firms should establish strict drug testing and drug use policies and conduct stringent background investigations on employees. Background investigations should include contact with agencies at the local, state, and federal levels. Entry into storage areas should be recorded. If possible, reverse distributors should prohibit entry into storage areas by a single employee. At least two individuals should enter storage areas together. Reverse distributors should establish standard procedures to follow in case of theft or loss.

What should a reverse distributor do when a customer ships back more than was issued on the DEA Form 222? There is no point in sending the substances back and risking diversion. Issue a DEA Form 222 quickly and record the actual amounts.

What is the best method to properly estimate controlled substance quantities? Mr. McFaul recommended that reverse distributors estimate the contents as a fraction of the container, i.e., ½ container, instead of the number of dosage units. (NOTE: Following the conclusion of the meeting, it was determined that the provision for estimating contents in fact refers to an estimated count, rather than estimated volume, of product in the container. We apologize for any confusion that may have resulted from this misstatement of the requirements.)

Ms. Good emphasized that the estimating option is simply one option that DEA is proposing to make the process simpler for reverse distributors. It is not a requirement.

Is there any way to standardize Memoranda of Understanding (MOUs)? Ms. Good explained that the rule will take the place of the MOUs. MOUs were an interim measure.

If a company initiates a background investigation on an employee and comes up with drug or alcohol offenses, does DEA publish anything regarding employment issues?

No. Each company should have their own policy.

What is the procedure for re-registration or renewal? Since the forms will not have a box to check for reverse distributor, attach a note or letter to your renewal application stating that you would like to be registered as a reverse distributor.

Are the same standards used in all DEA offices for warnings and fines? Yes, the same standards apply in all DEA offices.

Mr. McFaul reminded the group of the industry’s collective unfinished tasks:

The industry needs to develop standards that can be communicated to customers for describing partial returns.

The industry needs to identify and adopt methods to responsibly reconcile differences between receipts and customer records.

DEA’s scientific staff is available to review alternative methods of disposals.

Ms. Good thanked all participants for coming to the meeting and reminded them of the opportunity to comment on the interim final rule.

There is a post-meeting correction regarding reverse distributor estimates of controlled substances: the estimated count must be stated as a number of dosage units (and not an estimated fraction of the contents as was stated during the meeting). Liquids may be estimated in ounces or milliliters. We apologize for any confusion that may have resulted from this misstatement of the requirements.