Wednesday, February 27, 2008

Cardinal's Customer Problems Deepen

As I suspected, Cardinal Health’s (CAH) new role as supply chain enforcer is angering some of the customers who have been tagged as “diverters.”

According to Cardinal Health's Compliance Efforts Rile Some Customers, two pharmacies have so far sued Cardinal over the way in which the company is identifying purported diverters. (Alternate link from the Wall Street Journal site: Cardinal Health's Compliance Efforts Rile Some Customers.) Per the article:

“Community Drugstore, a specialty pharmacy focusing largely on pain management, said in a lawsuit filed in Delaware that Cardinal improperly stopped supply without any evidence that the store had engaged in wrongdoing. A federal judge in December ordered Cardinal to restore Community Drugstore as a customer.”

“In the other lawsuit, an Oklahoma federal judge in December ordered Cardinal to resume supplying controlled substances to Ken's Discount Pharmacy, a longtime Norman, Okla., pharmacy that had said it would go out of business in days without some action. The court said it appeared that Cardinal had stopped supplying the pharmacy and had placed the drugstore on an 'exclusion' list as an arbitrary reaction to compliance issues between Cardinal and the DEA. The plaintiff said the pharmacy, located across the street from a major medical facility, had suffered a hydrocodone shortfall after Cardinal limited its supply.”

You can read Cardinal’s PR spin in the article, but these stories echo the experience of Evergreen Professional Center Pharmacy that I describe in One Pharmacist’s View of Cardinal’s DEA Issues. I also want to give a shout out to regular reader PBMGuru, who was the first to predict legal action in a comment on Cardinal Sins (Again) from last November.

BTW, Dinah Brin of Dow Jones is the only national reporter who has been following Cardinal’s deepening problems with the DEA. Dinah is apparently a fan of my humble ol’ Drug Channels blog because she included a quote from yesterday’s post in her story. Thanks, Dinah!


  1. So let me get this right - If they don't have controls, they can be shut down by the DEA, but if they put controls in place (you can debate about the type of controls), they can be sued? Where does the logic enter in?

  2. OK Let's follow the bouncing ball. Cardinal supplies Ken's Pharmacy with Hydrocodone, generic Vicodin. The DEA, a Federal Agency, shuts down 4 of Cardinals Distribution Facilities because the DEA feels they are over supplying controls to questionable pharmacies. As part of their agreement with the DEA, a Federal Agency, Cardinal agrees to implement an order monitoring program that reviews orders and stops orders that are outside of DEA guidelines. Ken's pharmacy orders hydrocodone and it is outside of the DEA's threshold. Cardinal has a decision ship Ken or face further restrictions from the DEA. Cardinal discontinues shipping Ken's Pharmacy. Ken's Pharmacy goes to a Federal Court and the Federal Court tells Cardnial to Ship the Hydrocodne, an exact oppsite mandate of the DEA.

    Our government is out of control. They blame wholesalers for supplying the market yet out of the other side of their mouth they force wholsalers to ship to questionable pharmacies. Then out of another mouth allow for pharmacies to supply 90 day prescriptions creating a need for greater inventory in the pharmacy.

    Who is in control here?

  3. Yes, this is a very confusing situation. It's not clear to me who is setting specific thresholds nor how these limits are being determined. Based on the available public information, it looks like Cardinal is being encouraged by the DEA to be extremely risk-averse, yet the company has probably not had time to develop procedures for handling exceptions.

    I also wonder if these actions will lead to any material changes in Cardinal's revenue or profit outlook.

    BTW, I was under the impression that controlled substances are not eligible for 90-day scripts.


  4. Adam, please refresh my memory: didn't Amerisource already go through a similar painful DEA exercise? Did they have a handful (or few dozen) angered pharmacies as a result of similar gymnastics or is the Cardinal situation far more volatile (and worse) in your opinion? While this is all bad press I am having a hard time connecting the dots to say this is as dire as it would read on first blush (especially as I agree with the previous posts on this with regard to inconsistent government). Thanks.

  5. ABC had its controlled substance license suspended for about two months at a single site in Florida last year. See my June 2007 post for details.

    In contrast, Cardinal's first suspension was almost three months ago and it has not been reinstated yet. There have been a total of three suspensions so far plus the policy change at Stafford.


  6. Adam,

    As it relates to the 90 day fills see the attached link:

    Also in response, it goes further then "encouraged", I would go so far as to use the word forced. I have not seen a press release but I have heard that Cardinal has shut down control operations in a 4th facility in Houston. The government issues a mandate and does not account for what a particular pharmacy's business model is. In fact, all a wholesaler can do is ask a series of questions and visit a pharmacy. A wholesalers infrastructure can not afford or be expected to police what presrciptions are valid or not.

    The national wholesalers are implementing what is called an OMP, or "Order Monitoring Program," these programs are in line with what the DEA considers to be thresholds of usage on classes of prescription drugs, list 1, and "products of concern." These levels are not neccesarily in line with regional usage levels, for example Florida and its high level of pain management and LTC. I believe these pharmacies are being unfairly scrutinized by the DEA.

    The problem expands, wheras the DEA does have a "watch list", they do not have a "safe list," and therefor wholsalers are in the dark as to who may be good as it relates to high usages. Ken's problem, the physicians problem and the patients problem is not with wholesalers. The problem lies solely in the hands of the DEA and our Federal Law makers. Until they clearly address the issue of scripts written without a physical meeting with a doctor, the issue of invalid scripts written will continue to expand in our country as opportunistic business people take advatage of this gaping hole in our healthcare system.

  7. Thanks for the clarification on 90-day scripts.

    Here's a live link: DEA Final Rule on Issuing Multiple Schedule II Prescriptions Goes Into Effect.

    According to the Hyman, Phelps, & McNamara blog: "The Drug Enforcement Administration’s (“DEA”) final rule allowing individual practitioners to issue multiple Schedule II prescriptions to individual patients to be filled sequentially went into effect on December 19, 2007. The rule will allow practitioners to prescribe up to a 90-day supply of a Schedule II controlled substance."

    The whole post is worthwhile reading for anyone interested in this situation.

    I find it interesting that the rule went into effect shortly after the first 3 Cardinal facilities had their licenses suspended. Perhaps the DEA decided to ramp up enforcement in advance of the new rule?


  8. I also want to give a shout out to regular reader PBMGuru, who was the first to predict legal action

    Thanks for the acknowledgement. I [honking my own horn] have a history of accurate short-term political predictions (of which I firmly believe this to be).

    Oh, and I am a regular reader because Drug Channels is probably the best written pharmacy-policy-related blog that I have read.

  9. BTW, I was under the impression that controlled substances are not eligible for 90-day scripts.

    90-day fills are allowed for C-III through C-V controlled substances. I don’t actually know if there is a federally mandated days supply limit for these drug categories.

    However, C-II controlled substances are federally limited to 30 days... unless the prescriber writes a diagnosis code on the actual (paper) prescription. I don’t know that this regulation has been amended to accommodate e-prescribing.

  10. Oh, PBMGuru, I'm blushing!

    Feel free to email me some hints for your short-term political predictions so that I can make some money in the Wall Street Journal's Political Trading Market for Texas' primary. The market expects a big win for Obama.


  11. ... or I could not e-mail you my predictions. Money you invest in incorrect predictions results in larger gains for me. Assuming we are trading in the same market. And assuming I am right.

    Well, you know what happens when you assume.