Controlling Opinions: Introducing Ropes & Gray’s Controlled Substances Compliance Update

November 20, 2023
18:02 minutes

Welcome to the first installment of Ropes & Gray’s new podcast series, Controlling Opinions, which is focused on current trends and developments related to controlled substances that affect the health care and life sciences industries. In this inaugural episode, hear a cross-practice team of Ropes & Gray attorneys—Andrew O’Connor, Josh Oyster, Stephen Warnke, and Beth Weinman—discuss the controlled substances issues that have their attention, including the potential federal rescheduling of marijuana; regulatory and legislative developments related to psychedelic drugs; litigation and enforcement developments involving opioids and ADHD medications; and enforcement trends and investigation best practices for diversion incidents at health care providers.


Josh Oyster: Hi, I’m Josh Oyster, a partner in the life sciences regulatory and compliance practice group in Ropes & Gray’s Washington, D.C. office. I’m excited to be with you today for the first episode of our new podcast series, Controlling Opinions, which will be focused on current trends and developments related to controlled substances that affect the health care and life sciences industries. As we will discuss more in this episode, this podcast will be a forum for discussion of DEA regulatory developments, enforcement trends, compliance and investigation best practices, and other topics relevant to stakeholders that touch controlled substances. Whether you’re a hospital or other health care facility, a researcher, a pharmacy, a distributor, or manufacturer, we hope you’ll find something useful here. Today’s episode will introduce some of the cross-disciplinary Ropes & Gray team that focuses on these important issues as part of their respective practices. And then, we’ll cover some hot topics and trends relating to controlled substances that we’re watching right now.

As we dive in, I’d like my esteemed colleagues here with me today for this inaugural episode to introduce themselves and share a little bit about how their work involves controlled substances. Starting first, Andrew O’Connor, why don’t you kick us off?

Andrew O’Connor: Thanks, Josh. I’m Andrew O’Connor. I’m a partner in our litigation and enforcement group, and I co-lead the life sciences and health care industry group at Ropes and have been working on controlled substances issues for more than a decade. I’ve been involved in both investigations and litigation, including the national opioid MDL, and have a number of matters in which I interface with DEA and the DOJ on controlled substances issues.

Josh Oyster: Next up, Stephen Warnke.

Stephen Warnke: I am a partner in the Ropes & Gray health care group, resident in New York City. I’ve been a health care regulatory compliance and enforcement defense lawyer going on 30 years. I’ve seen various trends ebb, flow, crest, and diminish. And one that is definitely cresting these days is an inundation of drug diversion incidents that trigger a number of reporting and other regulatory obligations, some of which I will be happy to discuss later on in this podcast.

Josh Oyster: Thanks, Stephen. Beth?

Beth Weinman: Hi, everyone. My name is Beth Weinman, and I am counsel in Ropes & Gray’s life sciences regulatory and compliance group, also in Washington, D.C. I do a variety of types of work involving controlled substances. I counsel on regulatory obligations related to studying controlled substances in the context of clinical research. I counsel clients on theft and loss investigation and reporting obligations as well as licensing issues. I help clients respond to DEA audit findings and have worked on investigations looking into allegations of violations of the CSA. Prior to coming to Ropes five years ago, I was on the Criminal Investigations team in FDA’s Office of Chief Counsel, and there, I worked with federal agents and DOJ on countless investigations and prosecutions, many involving controlled substances.

Josh Oyster: Thanks, Beth. Lastly, I’ll add a little bit more about myself. The majority of my time is spent on FDA regulatory issues and counseling clients on those matters, but I also devote a substantial portion of my practice to counseling on a range of DEA regulatory questions for both health care and life sciences clients. Those questions relate to things like registrations, recordkeeping, reporting, security, and related issues. I also regularly assist with investigations of potential diversion.

With introductions out of the way, I’d like to go around and hear about an issue or trend that each of you is watching right now. What should entities dealing with controlled substances be paying attention to? Beth, why don’t you kick us off?

Beth Weinman: Happy to. I am watching the potential rescheduling of marijuana at the federal level. Following on an October 2022 request from President Biden to the Department of Health and Human Services (“HHS”) to review how marijuana is scheduled under federal law, HHS has recommended that DEA reschedule marijuana from Schedule I to Schedule III. Under the Controlled Substances Act (“CSA”), Schedule I substances are the most tightly regulated category of controlled substances, as they are determined to have a high level of abuse and don’t have an accepted medical use in treatment in the United States. In contrast, DEA considers Schedule III substances to have a low to moderate potential for abuse and addiction, and they do have a currently accepted medical use in the U.S. I think many of us are expecting a decision on rescheduling to be made before the end of the year, so potentially coming very soon. Recategorizing marijuana to Schedule III would likely pave the way for more clinical research on marijuana because DEA registration for research with substances outside of Schedule I is far less onerous. At times, a simple application can be used to approve research to investigate substances within Schedules II through V. DEA last considered rescheduling like this in 2016. The denial of that request to reschedule largely turned on HHS’s finding that marijuana lacked an acceptable medical use in the U.S. But since then, FDA has approved a drug derived from cannabis in 2018, so this current attempt to reschedule should have a different outcome. I definitely look forward to seeing how this plays out in the weeks and months ahead.

Josh Oyster: Very interesting, Beth, and I’m glad you brought up potential rescheduling of marijuana, because that’s not the only Schedule I controlled substance where there has been a lot of recent interest in rescheduling. I’ve been watching the developments related to DEA oversight of psychedelic drugs like psilocybin and MDMA, where there’s been a tremendous surge in clinical research involving psychedelics in recent years and substantial academic and industry interest in the potential of these drugs to treat mental health disorders and various other conditions. This has already led to substantial regulatory and legislative efforts to make research using these psychedelic drugs less burdensome and potentially to provide more or easier access to such drugs to terminally ill patients. For example, the U.S. Court of Appeals for the Ninth Circuit recently heard an appeal of the DEA’s denial of a petition to reschedule the drug psilocybin from Schedule I to Schedule II, and just a few weeks ago, on October 27, the Court remanded the case to the DEA to either clarify its reasons for denying the petition or to reevaluate the petition on an open record. This case involves a Seattle-based physician who’s been seeking access to psilocybin for his terminally ill patients. One of the key legal issues in the case involves whether psilocybin has a currently accepted medical use—even though it is not FDA approved, the drug is being studied in multiple clinical trials, and two psilocybin drug candidates in development have been granted what’s called “breakthrough therapy designation” by the FDA. The petitioner’s argument essentially boils down to this: “How can you say there’s no accepted medical use when the FDA considers these candidates to be breakthrough therapies, and they’ve been already extensively studied in clinical trials?” It will be interesting to watch how that plays out at the DEA on remand, something the industry should very much be paying attention to, especially given the surge in interest lately in research at academic medical centers and other institutions.

Elsewhere, in Congress, there’s been some psychedelic-related legislation introduced that industry stakeholders should be monitoring. For example, in March 2023, Senators Cory Booker and Rand Paul reached across the aisle and introduced what’s called the Breakthrough Therapies Act. The stated intention of this legislation is to remove regulatory hurdles that inhibit research and compassionate use access to potentially breakthrough therapies that are also Schedule I controlled substances, like MDMA and psilocybin. To date, there’s been little movement with this particular piece of legislation, but it will be interesting to watch what happens in Congress next year, hopefully as we move past shutdown and government funding talks and get back to the business of the country.

Andrew, what controlled substance developments have your attention?

Andrew O’Connor: Thanks, Josh. I’ve been following a few different trends. One is in the MDL litigation that I mentioned earlier. With Rite Aid’s Chapter 11 filing, the last of the Tier 1 defendants from the original MDL have now either settled or filed for bankruptcy. It’ll be interesting to continue to watch the plaintiffs’ bar and the attorneys general who have been at the center of the MDL and related investigations turn their attention to others. There are other defendants that are named in hundreds of cases that have, to date, been largely on pause, and it’ll be interesting to see whether the plaintiffs renew their attention to some of these other cases now that the big players in the industry have all found some sort of global resolution.

Against that backdrop, we’re also seeing continued attention by DOJ and the DEA on suspicious order monitoring, which was a key issue in the opioid MDL, particularly for distributors and pharmacies, but also for manufacturers. There is continuing investigative activity, and that activity continues despite DEA’s continued reluctance to provide any meaningful guidance to the industry on what a suspicious order monitoring program ought to look like. As many of the defendants had pointed out in the litigation, the DEA’s position has always been essentially, “It’s the registrant’s responsibility to figure out how to identify suspicious orders that are being placed to it and to know its customer.” But that’s not very practical or helpful guidance if you’re the compliance officers or lawyers on the ground trying to design an effective system. Companies have continued to muddle through that process and have certainly made great strides over the years, but DOJ and DEA have shown no interest in taking their foot off the gas when it comes to critiquing DEA registrants’ suspicious order monitoring efforts despite the best good faith attempts by industry.

Another trend that I’ve had my eye on is DEA’s focus on stimulants and, in particular, ADHD medications. It’s been a couple of years now that officials have said publicly that that’s an area of focus for them when it comes to diversion. But the focus on ADHD medication has become particularly interesting given the recent drug shortages and calls from members of Congress and others to increase the supply of ADHD medicines. There are very interesting parallels going back 15 years to opioids, where there were occasionally shortages of certain products, and FDA and others encouraged manufacturers to increase production of these controlled substances, only to, a few years later, second guess how the manufacturers had sold and the distributors had distributed those same products. So, as the entire supply chain deals with a shortage in ADHD medications, it’s particularly important, I think, for folks out there to keep their eye on the suspicious order monitoring requirements and potential diversion in the supply chain even as we try to deal with some very real drug shortages on the ground.

Josh Oyster: Thanks, Andrew. Always interesting to hear about the complex interplay of these product supply issues that implicate both DEA and FDA issues. Switching gears to Stephen, we’ve worked together for a long time on various diversion investigations and related matters. What are you watching and noticing these days?

Stephen Warnke: Thanks, Josh. As I mentioned at the beginning, what we’ve been seeing is a very significant increase in the number of diversion incidents that require reporting, number one, and once reported, trigger an aggressive reaction by law enforcement, including, first and foremost, investigators from the Drug Enforcement Administration Field Office as well as from, in states that have regulatory agencies that assert jurisdiction over controlled substances, the state equivalent or counterpart investigators. Not only are we seeing those investigations begin promptly and begin aggressively, but we’re also seeing that referrals to law enforcement occur with much more frequency than they may have in the past, not only to the U.S. Attorney’s office that has jurisdiction over the provider organization and the site of the diversion, but also, increasingly, to local district attorneys who are more apt than the U.S. Attorney’s office to take on sole agent or lone agent cases, cases where there isn’t a sophisticated diversion for purposes of selling into the secondary market but just an individual who is diverting for his or her own consumption.

First of all, what we’re seeing is increasing oversight by law enforcement triggered primarily, but not exclusively, by DEA involvement. Second of all, what we’re seeing is that the DEA itself, when it investigates diversion incidents at hospitals, often imposes significant penalties and significant prospective settlement obligations as part of its resolution of those matters. Two public settlements come to mind. One recently in June of 2023 involving a New England-based hospital where there was a diversion by a single nurse who stole IV bags of fentanyl, I believe, from an automated dispensing machine for their own purposes. When the DEA investigated, it found that the hospital had various deficiencies both in detecting that controlled substances were missing and, in general, inventory recordkeeping, which resulted in a $2 million settlement and, as I mentioned, prospective security and recordkeeping obligations. The same thing previously happened at the end of 2022 at another New England hospital, this one an instance where the controlled substance diversion was much more significant in volume. And so, this underscores the importance not only of detecting and promptly reporting instances of diversion but also ensuring that, when the DEA comes on site, and the DEA will likely come on site, your internal systems are strong, robust, and fully consistent with the DEA and local regulatory requirements.

One other point I would make is, given the virtual certainty of law enforcement scrutiny, it’s important to keep in mind that internal reviews of potential diversion may result in reports and other communications that, depending on how you structure your review process, may or may not be subject to assertion of attorney-client privilege. Typically, when there are incidents involving clinical personnel, hospitals implement their standard quality and peer review oversight processes, which are not subject to the oversight and direction of counsel, either internal or external. When that happens, depending, again, on the state, there may be peer review and quality assurance privileges, but those do not hold up against federal or state law enforcement subpoenas. And so, keep in mind that you may want to build in advance protocols for escalation of particularly sensitive matters so that you have the ability to assert and protect privilege over internal reviews and other communications if that’s appropriate. As I mentioned, law enforcement has become as ubiquitous as, unfortunately, the scourge of the opioid crisis, and so, processes should be designed with that very much in mind.

Josh Oyster: Thanks so much, Stephen. That’s a lot of really helpful advice based on what we’re seeing happening out in the world today. That’s, unfortunately, all the time we have for this first episode. I want to thank Stephen, Beth, and Andrew for joining today. And I especially want to thank all of our listeners for tuning in. We look forward to diving into these issues and many more on future episodes. If you have any feedback on today’s episode or suggestions for future episodes, please don’t hesitate to contact any one of us. You can find our contact information and more information about our respective practices on our firm’s website: You can listen to Controlling Opinions and other RopesTalk podcasts through our website, or you can subscribe wherever you listen to podcasts, including on Apple and Spotify. Thanks again for listening.

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