Opioid case’s end raised ire in DEA

Ex-officials: Firm’s penalty too light

WASHINGTON — After two years of painstaking investigation, David Schiller and the rest of the Drug Enforcement Administration team he supervised were ready to move on the biggest opioid distribution case in U.S. history.

The team, based out of the DEA’s Denver field division, had been examining the operations of the nation’s largest drug company, McKesson Corp. By 2014, investigators said they could show that the company had failed to report suspicious orders involving

millions of highly addictive painkillers sent to drugstores from Sacramento, Calif., to Lakeland, Fla. Some of those went to corrupt pharmacies that supplied drug rings.

The investigators were ready to come down hard on the fifth-largest public corporation in America, according to a joint investigation by The Washington Post and 60 Minutes.

The DEA team — comprising nine field divisions working with 12 U.S. attorney’s offices across 11 states — wanted to revoke registrations to distribute controlled substances at some of McKesson’s 30 drug warehouses. Schiller and members of his team wanted to fine the company more than $1 billion. More than anything else, they wanted to bring the first-ever criminal case against a drug distribution company, maybe even walk an executive in handcuffs out of McKesson’s San Francisco headquarters to send a message to the rest of the industry.

“This is the best case we’ve ever had against a major distributor in the history of the Drug Enforcement Administration,” said Schiller, who recently retired as assistant special agent in charge of the DEA’s Denver field division after a 30-year career with the agency. “I said, ‘How do we not go after the No. 1 organization?’”

But it didn’t work out that way.

Instead, top attorneys at the DEA and the Justice Department announced Jan. 17 that they had reached a deal with the corporation and its lawyers. The agreement was far more lenient than the field division wanted, according to interviews and internal government documents.

Although the agents and investigators said they had plenty of evidence and wanted criminal charges, they were unable to convince the U.S. attorney in Denver that they had enough to bring a case.

Discussions about charges never became part of the negotiations between the company and the government lawyers in Washington.

“It was insulting,” Schiller said. “Morale has been broken because of it.”

DIFFERENT APPROACHES

The result illustrates the long-standing conflict between drug investigators, who have taken an aggressive approach to a prescription opioid epidemic that killed nearly 200,000 people between 2000 and 2016, and the government attorneys who handle those cases at the DEA and the Justice Department.

Under the deal, none of McKesson’s warehouses would lose their DEA registrations. It ultimately agreed to temporarily suspend controlled substance shipments at four distribution centers and pay a $150 million fine.

The company, a second-time offender, had promised in 2008 to be more diligent about the diversion of its pills to the street.

“Within the ranks, we feel like our system was hijacked,” said Helen Kaupang, a DEA investigator and supervisor for 29 years who worked on the McKesson case in Denver before retiring in September.

While the fine set a record for drug distributors, it is only about $50 million more than the compensation last year for McKesson board Chairman and CEO John Hammergren, the nation’s third-highestpaid chief executive. McKesson has 76,000 employees and revenue of almost $200 billion a year, about the same as Exxon Mobil.

The Justice Department declined repeated requests for comment.

“The McKesson settlement was a groundbreaking conclusion to a successful multi-district investigation into the role of a distributor’s failure to detect and report suspicious orders, many of which were tied to independent and small chain pharmacy customers ordering opioid medications,” the DEA said in a statement. “More importantly, McKesson accepted responsibility and accepted terms beyond the requirements of the [Controlled Substances Act].”

A senior agency official, who spoke on the condition of anonymity, said that the fine was a significant penalty, that the company agreed to an independent monitor, and that the case prompted McKesson and other distributors to be more diligent about reporting suspicious orders.

“We could have fined them out of existence or indicted the company and put them out of business,” the official said. “I’d rather have one of the largest drug distributors be the poster child for detection and reporting of suspicious orders.”

At the time of the settlement, McKesson said it had instituted “significant changes” designed to flag suspicious orders of narcotics. “We continue to significantly enhance the procedures and safeguards across our distribution network to help curtail prescription drug diversion while ensuring patient access to needed medications,” Hammergren said in a statement.

The company also has said that addressing the opioid problem requires the cooperation of everyone involved — doctors, pharmacists, distributors and manufacturers.

In a recent interview, Geoffrey Hobart, McKesson’s lead attorney, said the prospect of criminal charges or a $1 billion fine against the company were never raised by government lawyers during nearly three years of negotiations.

“While I am not privy to any of the government team discussions that may have taken place behind closed doors in this particular settlement, I can tell you that the DEA investigators, the U.S. attorney’s offices and others would have had plenty of opportunity to raise their views during the process,” said Hobart, a former federal prosecutor who is now a partner at Covington, one of the most influential law firms in Washington. “While individual DEA investigators and agents are entitled to their opinions, their agency may ultimately take a different view.”

“If the lawyers for the government believed there was criminal conduct here, they would have told me about it,” Hobart added. “That would have increased the leverage they had, and that never happened.”

‘THEY’RE THE PRIZE’

DEA investigators, agents and supervisors who worked on the McKesson case said the company paid little or no attention to the unusually large and frequent orders placed by pharmacies, some of them knowingly supplying drug rings.

Instead, the DEA officials said, the company raised its own self-imposed limits, known as thresholds, on orders from pharmacies and continued to ship increasing amounts of drugs in the face of numerous red flags.

“They had multiple chances to correct their behavior going back to the Internet pharmacy days. They promised everyone they were going to correct their behavior, and a year or two later, they were doing it again,” said Jim Geldhof, a DEA program manager who worked on the McKesson case in Detroit before retiring in 2015 after a 43-year career. He is now advising law firms suing opioid manufacturers and distributors, including McKesson.

The DEA agents and investigators contend that lawyers stationed at the chief counsel’s office in the agency’s Division of Diversion Control were “intimidated” and retreated from the battle with McKesson and its legal team, which included a former top DEA official from that division.

Schiller said DEA lawyers would repeatedly ask: “Why would you go after a … company that’s going to cause all these problems with Ivy League attorneys, when we can go after other [DEA registration holders] that are much lower, that are going to put up no fight?”

“And I said, ‘That’s exactly why you want to go after McKesson. They’re the prize. They’re the ones that are going to send a message to the thousands of mom-and-pops, to other big distributors, to the manufacturers, that this is no longer acceptable.’”

In September 2015, McKesson and the government reached a tentative settlement.

The case took more than a year to come to a conclusion. In January, the Justice Department announced that it had finalized a deal with McKesson that included the $150 million fine and warehouse suspensions in Aurora, Colo.; Washington Court House, Ohio; and Livonia, Mich. The company would be barred from distributing for a year one type of narcotic, hydromorphone, from its Lakeland, Fla., warehouse. The company also agreed to increase staffing and retain an independent monitor to assess its compliance.

Schiller said he and his team were left demoralized.

“It’s on the front lines of everybody’s dinner table conversation, kids, adults,” he said. “McKesson was at the forefront. But DEA wasn’t going to go after them? We were going to settle. How do you settle? How do you say it’s OK, just ‘Here, write this check this time and — and close this place for a little bit, sign this piece of paper.’”

In Washington, the House Energy and Commerce Committee has begun an investigation into how drug distributors, including McKesson, sent 780 million pills over six years into West Virginia — 433 doses for every man, woman and child in the state. Sen. Claire McCaskill, D-Mo., has also launched an investigation into the role of drug distributors and manufacturers in the opioid epidemic.

Across the country, 41 state attorneys general have banded together to sue the opioid industry.

“One of the things we have to do is begin to hold the pharmaceutical companies accountable,” said Sen. Maggie Hassan, D-N.H., whose state suffers from the second-highest drug overdose rate in the nation. “Right now, when you see a fine for the McKesson company for [$150 million] when they make [$100 million] a week in profits, that isn’t going [to] do it.”

She noted that it was state attorneys general who won a settlement against the tobacco industry for more than $200 billion in the 1990s.

“This in many ways reminds me of the situation with Big Tobacco,” Hassan said. “I think it’s one of the reasons you see attorneys general around the country beginning to file lawsuits against the pharmaceutical industry, to hold them accountable for the cost of this terrible epidemic.”

“While I am not privy to any of the government team discussions that may have taken place behind closed doors in this particular settlement, I can tell you that the DEA investigators, the U.S. attorney’s offices and others would have had plenty of opportunity to raise their views during the process.” — Geoffrey Hobart