Rochester Drug Cooperative Operated Like A Corporate Drug Cartel

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Opioids crisis: Criminal charges against former Rochester drug company execs first in nation

Gary Craig and Sarah Taddeo, Rochester Democrat and Chronicle

A Rochester-based pharmaceutical distribution company helped propel the deadly opioid epidemic by closing its eyes to pharmacy customers that wantonly and excessively pushed prescription painkillers, federal authorities say.

Federal criminal and civil investigations into the operations of Rochester Drug Cooperative Inc. on Tuesday led to the first criminal charges against a drug distributor and “drug company executives for diversion of opioids,” federal prosecutors said.

Rochester Drug Cooperative, or RDC, agreed to a $20 million settlement to partly resolve the accusations against it. RDC also agreed to a strenuous monitoring program designed to ensure that it does not retreat into the lax oversight that has apparently plagued the company operations in recent years.

The investigation, first reported in the Democrat and Chronicle in August, has been ongoing since 2017.

This is the second time in four years that the federal Drug Enforcement Administration, or DEA, found significant problems with the RDC monitoring system. In 2015 RDC settled a civil lawsuit from the U.S. Attorney’s Office by paying $360,000 in penalties, after admitting that it did not, as required, report “thousands of purchase orders from RDC” to DEA through an electronic reporting system.

Geoffrey S. Berman, U.S. Attorney, Southern Dist of NY, announcing charges against Rochester Drug Co-Operative execs. Associated Press, Wochit

“We made mistakes, and RDC understands that these mistakes, directed by former management, have serious consequences,” RDC spokesman Jeff Eller said in a statement Tuesday.

Two former RDC officials — Laurence F. Doud III, who had served as chief executive officer, and William Pietruszewski, the former chief of compliance —  were criminally charged as part of the investigation.

Pietruszewski has pleaded guilty and is cooperating with authorities. He admitted to narcotics and fraud conspiracies, acknowledging that he knowingly did not report suspicious opioid orders from pharmacies to the DEA.

RDC became sixth largest distributor

The indictment against Doud alleges that, for at least five years, RDC distributed highly addictive substances to pharmacies and that senior management, including Doud, knew those substances were being “sold and used illicitly.”

Doud allegedly “cared more about profits than laws intended to protect human life,” said Geoffrey Berman, the U.S. Attorney for the Southern District of New York, in a Tuesday press conference. RDC allegedly “routinely prioritized sales over compliance,” he continued, and was “the knight in shining armor for pharmacies that had been cut off by other distributors.”

Though largely unknown locally, RDC has swelled into the sixth largest pharmaceutical distributor in the country. Founded in 1905, the company is headquartered in Gates and has a large distribution operation in New Jersey, closer to the New York City region that is home to many of RDC’s pharmacy customers.

Estimates of RDC annual revenue run between $1 billion and $2 billion. The company is a cooperative of independent pharmacies, meaning its members are its very customers — a relationship that some authorities maintain can be dangerously incestuous and encourage the negligent oversight.

RDC sells pharmaceuticals and other health-related products to more than 1,300 pharmacies.

800% increase in opioid sales

From 2012 to 2016, its oxycodone sales to these pharmacies skyrocketed from 4.7 million pills to 42.2 million, an 800% increase, Berman said Tuesday.

Fentanyl dose sales went from 63,000 to 1.3 million in the same period, a 2,000% increase, he said.

RDC “did not anticipate, nor were we prepared for, this dramatic increase in opioid prescription volume,” RDC spokesman Eller said in the statement. “The entire industry has been affected.”

“ … From 2012 to 2017, we did not have adequate systems in place nor were our compliance team and practices rigorous enough to provide adequate controls and oversight over the increased demand for narcotic drug products from pharmacies.”

According to court papers:

  • Several of RDC’s largest pharmacy customers exhibited patterns indicating that they were illegally diverting opioids — disproportionate cash purchases and high percentage of sales consisting of oxycodone and fentanyl, for example —  but RDC did not alert DEA, as required.
  • Issues were occasionally raised by RDC compliance specialists — one who wrote of a “staggering” number of opioid purchases “which makes my stomach sick” —  yet federal authorities were not notified.
  • RDC routinely raised the threshold number of opioid prescriptions for “high-volume” customers, in turn “maximizing its sales and revenues above complying with its own policies and DEA reporting requirements.”
  • RDC “made the deliberate decision not to investigate, monitor, and report to the DEA pharmacy customers that it knew were diverting controlled substances for illegitimate use,” according to court papers.

“Because it knew that reporting these pharmacies would likely result in the DEA investigating and shutting down its customers, Rochester Drug Cooperative’s senior management directed the company’s compliance department not to report them, and instead to continue supplying those customers with dangerous controlled substances that the company knew were being dispensed and used for illicit purposes,” authorities said in court papers.

“Why did they do it? The answer is greed,” said Berman.

$20 million over five years

RDC agreed to three years of monitoring by an independent compliance official who will report regularly to the DEA. The $20 million fine is scheduled to be paid over five years.

The criminal prosecution of RDC is “deferred” under the agreement with authorities, meaning there will not be a prosecution as long as RDC abides by the agreement terms.

The criminal charges against former CEO Doud and former compliance officer Pietruszewski could be a precedent-setting move with the prosecution of drug company executives. To date, state and federal authorities have sought civil actions to try to slow the opioid crisis.

Last month, for instance, New York Attorney General Letitia James announced a lawsuit against major opioid manufacturers and distributors, including RDC.

Last year Doud, who had been ousted from the company, sued RDC. He claimed he was being scapegoated for the DEA investigation.

That suit is still pending in federal court in Rochester.

Joseph Brennan, who had been serving as chief executive officer of RDC, resigned last week. The company’s chief financial officer, John Kinney, is now acting chief executive officer.

At a news conference Tuesday, Monroe County Sheriff’s Office Undersheriff Korey Brown called RDC’s criminal activity “large scale drug dealing.” The Sheriff’s Office was not involved in the investigation, but wanted to highlight the damage that can be done to a community with opioids.

“You can’t be in today’s society and not know how bad the opioid crisis is,” Brown said. “… it’s horrifying what they did.”

 A popular industry publication shows that in 2016 pharmaceutical distributors were responsible for the handling of almost 96 percent of drugs on the market.

That same publication, from the Healthcare Distribution Alliance Research Foundation, says that U.S. pharmaceutical sales from distributors grew from $305 billion in 2013 to $408 billion in 2016 — a 34 percent increase.

“Our country is in midst of a…drug abuse epidemic,” said Berman Tuesday. “Our office will do everything in its power to bring to justice anyone responsible for unlawfully fueling this epidemic, and that includes executives who illegally distribute drugs from their boardrooms.”

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https://www.democratandchronicle.com/story/news/2019/04/23/rochester-drug-cooperative-20-million-opioid-distribution-drug-enforcement-administration/791689002/

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