### ECONOMIC IMPACT ANALYSIS of Proposed Rule on Controlled Substances and List I Chemical Registration

a nd Reregistration Fees, DEA
- 346

Drug Enforcement Administration U.S. Department of Justice February 2011

### Table of Contents

CHAPTER 1: PURPOSE
................................ ................................ ................................ ................................ ......... 3 CHAPTER 2: STATEMENT OF NEED FO R PROPOSED RULE
................................ ................................ ................... 4 2.1 S TATUTORY A UTHORITY

................................ ................................ ................................ ................................ ......... 4 2.2 P ROPOSED R EGISTRATION AND R EREGISTRATION FEES

................................ ................................ ................................ . 5 CHAPTER 3: REGISTRANT LANDSCAPE
................................ ................................ ................................ ................ 8 CHAPTER 4: ALTERNATIVE FEE CALC ULATION METHODOLOGIE S CONSIDERED
................................ ................ 11 4.1 S COPE OF A NALYSIS

................................ ................................ ................................ ................................ ............ 11 4.2 P AST

- B ASED O PTION

................................ ................................ ................................ ................................ .......... 12 4.2.1 Description

................................ ................................ ................................ ................................ ........... 12 4.2.2 Analysis

................................ ................................ ................................ ................................ ................ 13 4.3 F UTURE
- B ASED O PTION

................................ ................................ ................................ ................................ ...... 15 4.3.1 Description

................................ ................................ ................................ ................................ ........... 15 4.3.2 Analysis

................................ ................................ ................................ ................................ ................ 16 4.4 F LAT F EE O PTION

................................ ................................ ................................ ................................ ............... 18 4.4.1 Description

................................ ................................ ................................ ................................ ........... 18 4.4.2 Analysis

................................ ................................ ................................ ................................ ................ 19 4.5 W EIGHTED

- R ATIO O PTION (S ELECTED M ETHODOLOGY )

................................ ................................ ............................ 20 4.5.1 Description

................................ ................................ ................................ ................................ ........... 20 4.5.2 Analysis

................................ ................................ ................................ ................................ ................ 21 CHAPTER 5: IMPACT ANALYSIS OF P ROPOSED FEE
................................ ................................ ........................... 24 5.1 A NNUAL E CONOMIC E FFECT L ESS T HAN $100 MILLION

................................ ................................ ............................. 24 5.2 N O M ATERIAL A DVERSE A FFECT

................................ ................................ ................................ ........................... 25 5. 2.1 Registration Fees as Business Expense

................................ ................................ ................................ 25 5.2.2 Registration Fees as Percentage of Income

................................ ................................ ......................... 25 5.2.3 Fee

- Exempt Registrants

................................ ................................ ................................ ....................... 27 5.2. 4 Conclusion

................................ ................................ ................................ ................................ ............ 28 CHAPTER 6: IMPACT OF PROPOSED R ULE ON SMALL ENTITIE S
................................ ................................ ......... 29 6.1 I MPACT OF P ROPOSED F EES ON S MALL B USINESSES

................................ ................................ ................................ .. 29 6.2 I MPACT OF P ROPOSED F EES ON O THER R EGISTRANTS

................................ ................................ ................................ 31 6.2.1 Impact on Pharmacies

................................ ................................ ................................ ......................... 31 6.2.2 Impact on Manufacturers and Distributors

................................ ................................ ......................... 32 CHAPTER 7: COST

- BENEFIT ANALYSIS OF PROPOSED REGULATORY ACTION
................................ ..................... 34
7.1 C OSTS OF THE P ROPOSED R ULE

................................ ................................ ................................ ............................. 34 7.2 B ENEFITS OF THE P ROPOSED R ULE

................................ ................................ ................................ ......................... 34 7.3 E VALUATION OF C OSTS AND B ENEFITS OF P ROPOSED R ULE ( THRESHOLD ANALYSIS )

................................ ......................... 373 

### CHAPTER 1: PURPOSE
With proposed rule DEA

- 346, DEA proposes adjust ing the fee schedule for DEA registratio n and reregistration fees necessary to recover the full costs of its Diversion Control Program (DCP) relating to the registration and control of th e manufacture, distribution, dispensing, importation and exportation of controlled substances and List I chemicals a s mandated by the Controlled Substances Act (CSA)

. The purpose of this document is to: Describe the need for the proposed rule. Analyze alternative methodologie s considered for calculating fees across registrant groups/business activities. Demonstrate that the annual impact of the proposed fee is not a significant regulatory action under Executive Order (E

. O

. ) 12866 and E

. O

. 13563. Describe the small entities that are impacted by the propos ed rule and the impact of the rule on those small entities as required by the Regulatory Flexibility Act (5
U.S.C. 601

- 612).
Provide an a nalysis of c osts and b enefits

.4



### CHAPTER 2: STATEMENT OF NEED FO R PROPOSED RULE

2.1 STATUTORY AUTHORITY Proposed rule DEA

- 346 is required by statute and proposes a new fee calculated pursuant
to federal law. Th e proposed rule would adjust the registration and reregistration fees relating to the registration and control of the manufacture, distribution, and dispensing, importation and exportation of controlled substances and List I chemicals. This change is planne d to take effect October 1, 2011 for the Fiscal Year 2012

- 2014 period. The Drug Enforcement Administration (DEA) implements and enforces Titles II and III of the Comprehensive Drug Abuse Prevention and Control Act of 1970, often referred to as the
Controll ed Substances Act (CSA) and the Controlled Substances Import and Export Act (CSIEA) (21 U.S.C. 801

- 971), as amended (hereinafter “CSA”). 1 DEA drafts and publishes the implementing regulations for these statutes in Title 21 of the Code of Federal Regulatio ns (CFR),
Parts 1300 to 1321. The Diversion Control Program ( DCP ) is a strategic component of DEA that carries out the mandates of the CSA and its regulations to prevent, detect, and eliminate the
diversion of controlled substances and listed chemicals in to the illicit market while ensuring a sufficient supply of controlled substances and listed chemicals for legitimate medical, scientific, research, and industrial purposes. All manufacturers, distributors, dispensers, importers , and exporters of control led substances and List I chemicals are required to maintain an annual registration with DEA (21 U.S.C. 822 and 958(f)). Under the CSA, DEA is authorized to charge reasonable fees relating to the registration and control of the manufacture, distribution, dispensing, import ation , and
export ation of controlled substances and listed chemicals. 21 U.S.C. 821 and 958(f). DEA must

1 The Attorney General’s delegation of authority to DEA may be found at 28 CFR 0.100.5

set fees at a level that ensures the recovery of the full costs of operating the various aspects of its
DCP. 21 U.S.C. 886a. Each year, DEA is required by statute to transfer the first $15 million of
fee revenue s into the general f u nd of the Treasury and the remainder of the fee revenues is deposited into a separate fund of the Treasury called the Diversion Control Fee Account (DCFA ). 21 U.S.C. 886a(1). On at least a quarterly basis, the Secretary of the Treasury is required to reimburse DEA an amount from the DCFA “in accordance with estimates made in the budget request of the Attorney General for those fiscal years” for the opera tion of the DCP

. 2 21 U.S.C. 886a(1)(B) and (D). The first $15 million of fee revenues that are transferred to the Treasury do not support any DCP activities.

2.2 PROPOSED REGISTRATIO N AND REREGISTRATION FEES Currently, handlers of controlled substances and List I chemicals pay registration and reregistration fees as required by statute. These fees (some of which are paid annually and some of which are paid every three years) range from $184 to $2,293, depending on registrant category. Practitioners, mid

- l evel practitioners, dispensers, researchers, and narcotic treatment programs pay an annual registration or annual equivalent of $184 (practitioners pay a registration fee of $551 every three years). Distributors, importers, and exporters pay an annual fee of $1,147, and manufacturers pay an annual fee of $2,293.
In accordance with the statutory requirement s of the CSA, DEA continually monitors the anticipated budget and collections to determine whether the registration fees need to be adjusted.
DEA has determined that the fees need to increase in Fiscal Year ( FY ) 2012, beginning October

2 The diversion control program (DCP) consists of the controlled substance and chemical diversion control activities of DEA. These activities are related to the registration and control of the manufacture, distribution, dispensing, importation, and exportation of controlled substances and listed chemicals (21 U.S.C. 88 6a(2)).6

1, 2011, to the amounts indicated in Table 1: Proposed Registration and Reregistration Fees by
Class/Business in order to fully fund the DCP

. DEA is proposing to adjust the annual registrant fees as follows planned to be effective October 1, 2011: Table 1: Proposed Registration and Reregistration Fee by Class/Business Registrants on Three Y

ear R egistration C

ycle Registrant Class/Business Current Three Year Fee * Proposed

Three Year Fee* Difference

Per Year Pharmacy $551 $732 $60 Hospital/Clinic $551 $732 $60 Practitioner $551 $732 $60 Teaching Institution $551 $732 $60 Mid

- Level Practitioner $551 $732 $60 *Pharmacies, hospitals/clinics, practitioners, teaching institutions, and mid

- level practitioners currently pay a fee for a three year period. This current three

- year fee is $551. The proposed new fee for the three

- year registration period would be $732. The three year difference is $181 or an annual difference of $60. Registrants on A nnual R egistration C ycle Registrant Class/Business Current Annual Fee Proposed

Annual Fee Difference
Researcher/Canine Handler $184 $244 $60 Analytical Lab $184 $244 $60 Maintenance $184 $244 $60 Detoxification $184 $244 $60 Maintenance and Detoxification $184 $244 $60 Compounder/Maintenance $184 $244 $60 Compounder/Detoxification $184 $244 $60 Compounder/Maintenance/ Detoxification $184 $244 $60 Distributor (chemical and controlled substances) $1,147 $1,526 $379 Reverse distributor $1,147 $1,526 $379 Importer (chemical and controlled substances) $1,147 $1,526 $379 Exporter (chemical and controlled substances) $1,147 $1,526 $379 Manufacturer (chemical and controlled substances) $2,293 $3,052 $759

DEA last adjusted the registration fees in 2006 for the Fiscal Year 2006

- 2008 period.
Since th at time , the diversion control responsibilities and activities of the DCP have grown but
the fees have not. Without an adjustment of the fees, DEA w ill face a projected budgetary7

shortfall by the end o f FY 2014 that would require dramatic program reductions to maintain budget solvency.8 

### CHAPTER 3: REGISTRANT LANDSCAPE

Th is proposed rule affects those manufacturers, distributors, dispensers, importers , and exporters of controlled substances and List I chemicals that are required to obtain and pay a registration fee with DEA pursuant to the CSA (21 U.S.C. 822 and 958(f)). As of December
2010 , there were 1,378,609 controlled substances and chemical regis trants ( 1,377,466 controlled substances registrants and 1,143 chemical registrants), as shown in Table 2. Pharmacies, hospitals/clinics, practitioners, teaching institutions, and mid

- level practitioners make up 98.9 percent of all registrants. These registrants register every three years. Other registrants maintain an annual registration. Registration and rereg is tration costs vary by registrant category as described in more detail in the sections below

.

Table 2 : Number of Registrants by Business A ctivity Registrant Class/Business Controlled Substances Chemicals Pharmacy 66,766 Hospital/Clinic 15,774 Practitioner 1,097,454 Teaching Institution 351 Mid

- Level Practitioner 183,538 Researcher/Canine Handler 8,997 Analytical Lab 1,496 Narcotic Treatment Program 1,272 Distributor 795 584 Reverse Distributor 56 Importer 203 180 Exporter 236 166 Manufacturer 528 213 Total 1,377,466 1,143 Total (all registrants) 1,378,609
*Data as of December 2010.

The proposed fees would affect a wide variety of entities. Table 3 indicates the sectors affected by the proposed rule and their average annual revenue/income

. Most DEA registrants9

are small entities under Small Business Administration (SBA) standards. Almost all practitioners , which are the largest category of registrants , would be considered small (annual revenues of less than $6 million to $8.5 million, depending on specialty) , and practitioners and
mid

- level practitioners total 1,280,992 (as of Decem ber 2010)

.

Table 3 : Industrial Sectors of DEA Registrants
Sector NAICS Code Average Annual Revenue

per Establishment Manufacturers Petro

- chemical Manufacturing (organic, inorganic) 32511 $1,390,485,971 Medicinal and Botanical Manufacturing 325411 $27,601,834 Pharmaceutical Manufacturing 325412 $144,173,821 Adhesive Manufacturing 325520 $17,482,468 Toilet Preparation Manufacturing 325620 $50,322,290 Other Chemical Manufacturing 325998 $13,720,807 Distributors Drugs and Druggist Sundries Wholesalers 424210 $64,793,480 General Line Grocery Wholesalers 424410 $45,518,407 Confectionary Merchant Wholesalers 414450 $17,175,982 Chemical Wholesalers 424690 $12,856,993 Tobacco Wholesalers 424940 $71,437,205 Miscellaneous Wholesalers 424990 $2,741,857 Pharmacies Supermarkets 445110 $7,247,540 Drug Stores 446110 $4,829,487 Discount Stores 452112 $26,535,201 Warehouse Clubs and Superstores 452910 $76,300,280 Other Testing Labs 541380 $1,907,414 Packaging and Labeling Services 561910 $2,696,904 Other Practitioners Professional Schools 611310 $1,373,855 Ambulatory Health Care Services 621 $1,236,852 Hospitals 622 $108,286,641 Source: 2007 Economic Census. http://www.census.gov/econ/census07

.10

Supermarkets, discount stores, warehouse clubs, and superstores handle controlled substances through their distribution centers and pharmacies. Drug products containing List I chemicals are primarily distributed as over

- the

- counter medicines. These ar e distributed by drug wholesalers who specialize in non

- prescription drugs, wholesalers who supply convenience stores, and grocery, pharmacy, and discount stores (e.g., superstores) that operate their own
distribution centers.11



### CHAPTER 4: ALTERNATIVE FEE CALCULA TION METHODOLOG IES CONSIDERED

4.1 SCOPE OF ANALYSIS In developing this proposed rule, DEA examined alternative methodologies to calculate the registration and registration fees. DEA analyzed alternative methodology approaches keeping in mind its statutory obligations under the CSA. First, p ursuant to statute, DEA is authorized to charge reasonable fees relating to the registration and control of the manufacture, distribution, dispensing, import ation , and export ation of controlled substances and listed chemicals. 21 U.S.C. 821 and 958(f). Second, DEA must set fees at a level that ensures the recovery o f the full costs of operating the various aspects of its diversion control program (DCP) . 21 U.S.C. 886a. Accordingly, in examining each alternative methodology DEA considered whether the fee
calculation : (1) was reasonable and (2) could fully fund the costs of operating the various aspects
of the DCP.
Moreover, the CSA establishes a specific regulatory requirement that DEA charge fees to fully fund the DCP, but that the fees collected by DEA are to be expended through the budget

process only . Specifi cally, each year DEA is required by statute to transfer the first $15 million of fee revenues into the general fund of the Treasury and the remainder of the fee revenues is deposited into a separate fund of the Treasury called the Diversion Control Fee Acc ount (DCFA). 21 U.S.C. 886a(1). On at least a quarterly basis, the Secretary of the Treasury is required to refund DEA an amount from the DCFA “in accordance with estimates made in the budget request of the Attorney General for those fiscal years” for th e operation of the DCP. 21 U.S.C. 886a(1)(B) and (D). For that reason, DEA is only considering alternative methodologies12

to calculate the registration and reregistration fees, not alternative approaches to expend fees
collected because th ose decision s ar e governed by the CSA and the budget process. In developing this rule, DEA considered four methodologies to calculate registration and reregi stration fees: Past

- Based Option, Future

- Based Option, Flat Fee Option, and Weighted

Ratio Option. Although the increase in the fees may be passed down to the registrants’ customers, the alternatives are analyzed on the worst

- case scenario where the increase in the fee is absorbed fully by the registrants.
For each of the alternatives considered , the calculated fee s are analyzed for reasonableness by examining : (1) the absolute amount of the fee increase, (2) the change in fee

as a percentage of revenue from 2007 to 2012, and (3) the relative fee increase across registrant

groups . Additionally, each calculation methodology is re
- evaluated for its overall strengths and
weaknesses.

4.2 PAST

- BASED OPTION
4.2.1 Description Option 1 is called the Past

- Based Option , and is based on historic investigation work hour
data to set the apportionment of cost to each re gistrant category. In considering O ption 1, DEA
used historic investigation work hour data from the Fiscal Year 2007

- 2009. DEA’s records permit an accurate apportionment of work hours for certain types of diversion control activities (e.g., investigation s) among classes of registrants. DEA estimates that approximately three to five percent of costs can be directly linked to pre

- registration and scheduled investigations. Although some criminal investigations can be attributed to registrant groups, DEA di d not include the cost of criminal investigations for the fee calculation under the Past

- Based Option. While DEA develops annual work plans for number of scheduled investigations by registrant13

type, DEA does not develop such plans for criminal investigati ons. Therefore , the cost of criminal investigations is allocated equally across all registrant groups, regardless of business activity. The remaining costs associated with DCP activities and components benefit all registrants (e.g., policy, registration, and legal activities); however, DEA records cannot attribute these costs by registrant class. Under Option 1, pre
- registration and scheduled investigation costs are assigned to registrant classes and all other costs are recovered on an equal, per

registr ant basis.
Table 4 : Annual Registrant Fees Under Past

- Based Option

Source: 2007 Economic Census; Bureau of Labor Statistics. * No NAICS code for Importer/Exporter of controlled substances and/or List I chemicals. ** Current Fee divided by average revenue/income in 2007, first full year of the current fee. *** Past

- Based Fee divided by average revenue in 2007 for manufacturers, distributors and pharmacies. Past

- Based Fee divided by projected average income in 2012 for practitione rs. Only 2002 and 2007 data is available for manufacturers, distributors, and pharmacies, while practitioner income projection is based on five years of income data, 2004

- 2009

.

4.2.2 Analysis Analysis of Fees
DEA calculated the annual registrant fee for key registrant groups under Option 1 and compared this fee to the current fee. Although distributors and importers / exporters are in the same fee class in the current fee structure (Weighted

- Ratio Option), in this analysis, distributors are separated from importers and exporters based on the available historic work hour data and reported work hours by type of registrant.14

In the past

- based option, the calculated fees increase by a factor of 1.16, 3.19, 1.10, and 1.32 for manufacturers, dis tributors, importers/exporters, and practitioners respectively. The proposed fees as a percentage of revenue is very low as indicated in Table 4 below , 0.000 to 0.019 percent , 0.005 to 0.134 percent , 0.000 to 0.005 percent , and 0.12 5 to 0.257
percent for manufacturers, distributors, pharmacies , and practitioners respectively. The impact
of the incremental increase in the fee from current fees as a percentage of revenue is even lower. Finally, the largest increase , by a factor of 3.19, is incu rred by distributors , largely as a consequence of their separation from exporters and importers , while the increases for other groups range from a factor of 1.10 to 1.32.

Evaluation of Methodology While Option 1 is based on accurate historical data, it d oes not allow for future needs, demands and shifting responsibilities of the DCP, such as A gency priorities, new legislation, control of substances, new investigative requirements, and other program needs.

Conclusion

DEA d oes not propose the past

- based opt ion for two key reasons. First, the fee increase is disproportionately burdensome to a small number of registrants. Distributors’ fees would increase by over three fold , while the fees for the remaining registrant groups would increase
from 10 percent to 32 percent. DEA deemed this option unreasonable. Second, the past

- based option is backward looking and implicitly assumes that the future will be similar to the past.
DEA cannot assume that future workload will reflect past DEA work hour data. For example , DEA plans to conduct more scheduled investigations in accordance with the new scheduled investigation work plan. As a result , DEA has concluded that past data is not the best basis for
the calculation of proposed fees.15

4.3 FUTURE
- BASED OPTION
4.3.1 Descrip tion Option 2 is called the Future

- Based Option , and is based on projected work hours for
each registrant class using scheduled investigation work plan goals and anticipated/planned

resources . In considering Option 2 , DEA based its calculations on project ed work hour data by registrant group for F Y 2012

- 2014. The future

- based option is based on DEA’s projection of work plan goals and the resources required for these years

– specifically , examining the direct cost of anticipated scheduled investigations. 3 Based on the data used to develop the projections,
the future

- based option divides registrants into six classes and examines the projected work hour data within these categories. In contrast to Option 1 above , which is calculated us ing actual data, Option 2 is calculated us ing projected data relative to work plan goals and resources . This type
of calculation result s in a more finely tuned analysis of anticipated work hours. DEA calculated the projected annual fees under Option 2 and c ompared these fees to the current fees. Table 5 presents the se results:

3 Many criminal investigations are attributable to the type of registrant(s) being investigated. However, because DEA cannot anticipate the volume of criminal cases initiated, either historically or in future years, these costs were not attributed directly to the registrant types affected. Rather, criminal investigative costs are spread across all registrants equally in both Option 1 and Option 2.16 Table 5 : Annual Registrant Fees Under Future

- Based Option

Source: 2007 Economic Census; Bureau of Labor Statistics. * No NAICS code for Importer/Exporter of controlled substances and/or List I chemicals. ** Current Fee divided by average revenue/income in 2007, first full year of the current fee. *** Future

- Based Fee divided by average revenue in 2007 for manufacturers, distributors and pharmacies. Future

Based Fee divi ded by projected average income in 2012 for practitioners. Only 2002 and 2007 data is available for manufacturers, distributors, and pharmacies, while practitioner income projection is based on five years of income data, 2004

- 2009

.

4.3.2 Analysis Analysis of Fees
In the future

- based option, as shown in the table above, the fee increase range s from a factor of 1.26 for practition er s to 7.67 for manufacture r s of controlled substances. The proposed fees as a percentage of revenue is very low as indicated in Tab le 5 : 0.001
to 0.128 percent for controlled substances manufacturers , 0.001 to 0.059 percent for17

manufacturers of List I chemical manufacture r s , 0.009 to 0.239 percent for distributors , 0.000 to
0.005 percent for pharmacies , and 0.119 to 0.245 percent for practitioners. The impact of the
incremental increase in the fee from current fees as a percentage of revenue is even lower. As expected, registrant groups with a larger fee increase under this option would experience a larger
increase as a percentage o f revenue. Under this option, the increases in fees vary greatly across registrant groups. For example, controlled substances manufacturers incur the largest proportional increase by a factor
of 7.67 or $ 15,302 annually , while practitioner fees increase b y a factor of 1.26 or $48 annually.

Evaluation of Methodology Option 2 is calculated us ing projected data relative to work plan goals and resources

. This result s in a more finely tuned analysis of anticipated work hours. The disadvantage of Option 2 is that , because the calculation is based on projected work hour data , it may not be able to adapt to the shifting priorities and demands of DCP operations

. Additionally, a change in work plan can cause actual cost to be much different for some registrant g roups , causing a
contradiction between the rationales used to calculate the fees and actual operations.

Conclusion In reviewing Option 2 , DEA concluded that for most registrant categories, the large proportional increase in fees would not pass the “reasona ble fee” standard required by statute and could represent a significant burden on some registrants. Additionally , DEA believes that the vast disparity in the increase, where fees for manufacture r s increase by more than seven fold , while fees for registran ts increase by 26 percent , is unreasonable. Although there is concern regarding a potential difference between the scheduled investigation work plan and actual operations, DEA recognizes that no plan is perfect and operations may be adjusted as the18

enviro nment changes. This potential exists for all four options. Therefore, the potential change in work plan did not weigh into the DEA’s decision to not select Option 2. DEA ’s decision to not select Option 2 is based on the unreasonable increase in fees for some registrants and the severe disparity in increase among the registrant groups.

4.4 FLAT FEE OPTION
4.4.1 Description Option 3 is called the Flat Fee Option

. The flat fee option would provide equal fees across all registrant groups regardless of the proportion of DCP costs and resources the registrant group may require (e.g., investigation resources)

. The fee calculation is straightforward : the
total amount needed to be collected over the three year period is divided by the total number of registration fee t ransactions over the three year period, adjusting for registrants on the three year registration cycle ( so that the fees for a three year period are three times the annual fee )

. DEA calculated the annual registrant fee for key registrant groups under Option 3 and compared this fee to the current fee:

Table 6 : Annual Registrant Fees Under Flat

- Fee Option

Source: 2007 Economic Census; Bureau of Labor Statistics. ** Current Fee divided by average revenue/income in 2007, first full year of the current fee. *** Flat Fee divided by average revenue in 2007 for manufacturers, distributors and pharmacies. Flat Fee divided by projected average income in 2012 for practitioners. Only 2002 and 2007 data is available for manufacturers, distributors, and pharmacies, while practitioner income projection is based on five years of income data, 2004

- 2009.19

4.4.2 Analysis
An alysis of Fees
In the flat

- fee option, the registration fees for manufacturers and distributors are reduced significantly, from $2,293 for manufacturers and $1,147 for distributors to $247 for both. This reduction represents an 89 percent and 78 percent r eduction for manufacturers and distributors respectively. The r egistration fee for practitioners increase s by 34 percent to $247 on an annual
basis. The proposed fees as a percentage of revenue is very low as indicated in Table 6 above:
0.000 to 0.002 p ercent for manufacture r s , 0.000 to 0.009 percent for distributors , and 0.127 to
0.261 percent for practitioners. The impact of the incremental increase in the fee from current
fees as percentage of revenue is even lower. Registrant groups with a decrease in fee under this option would experience a decrease as a percentage of revenue.
As with the other options, the calculation considered in Option 3 results in a dramatic fee disparity among registrant groups. The f ees fo r manufacturers and distributors decrease , while the fees for practitioners increase.

Evaluation of Methodology
The flat fee option has positive and negative aspects. The fee that DEA is required to charge registrants is based on a statutory requirement

– it is not a user fee. A u ser fee calculation would require a calculation of the direct and indirect cost s associated with each of the registrant groups and set fees to recover the costs associated with each of the se groups. Since the registration fee is not a user fee , DEA is not required to calculate according to its costs by registrant groups

. General historical costs of scheduled investigation s support different fees20

among the categories. However, setting the same fees for all registrants, from mu lti

- national corporations to mid

- level practitioners is unreasonable.

Conclusion
After consideration of the flat fee option , DEA did not select this option to calculate the proposed new fees. The fee disparity among registrant groups caused by this calculation
alternative is too great. Under this option, t he calculation would result in reduce d fees for manufacturers and distributors by 89 percen t and 78 percent respectively, while p ractitioner fees
would increase by 34 percent . Setti ng the fees at the same level across all registrant groups is

not “reasonable

. ” DEA registrants include some of the largest corporations in the world , although the vast majority of t he registrants are practitioners , such as physicians and nurses

. To
sati sfy the “reasonable” standard, registration fees should be different among the categories to
account for cost and economic di fferences among the registrant group. Option 3 did not satisfy this requirement

.

4.5 WEIGHTED

- RATIO OPTION ( Selected Methodology)
4.5.1 Desc ription Option 4 is called the Weighted

- Ratio Option . In this option, fees are assign ed to different registrant categories based on DEA’s general historical cost data . This option distinguish es among the categories to establish a “reasonable” fee for each category. The different fees are expressed in ratios : 1 for researchers, canine handlers, analytical labs, and narcotics treatment programs ; 3 for registrant s on three year registration cycles, pharmacies, hospitals/clinics, practitioners, teaching institutions, and mid

- level practitioners ; 6.25 for distributors and importers/exporters ; and 12.5 for manufacturers

. The adopted ratios are applied
for administrative convenience s ince histor ically , costs vary and a fee must be set in advance

. To21

determine the fee, a w eight ed ratio is assigned based on registrant group , and the amount needed
to be collected over the FY 2012

– FY 2014 period is divided by the weighted number of estimated regis trations to determine the fees.

Table 7: Annual Registrant Fees Under Weighted

- Ratio Option
Registrants on Three Y

ear R egistration C

ycle Registrant Class/Business Current Three Year Fee * Proposed

Three Year Fee* Difference

Per Year Pharmacy $551 $732 $60 Hospital/Clinic $551 $732 $60 Practitioner $551 $732 $60 Teaching Institution $551 $732 $60 Mid

- Level Practitioner $551 $732 $60 *Pharmacies, hospitals/clinics, practitioners, teaching institutions, and mid

- level practitioners currently pay a fee for a three y ear period. This current three year fee is $551. The proposed new fee for the three year registration period would be $732. The three year difference is $181 or an annual difference of $60. Registrants on A nnual R egistration C ycle Registrant Class/Business Current Annual Fee Proposed

Annual Fee Difference
Researcher/Canine Handler $184 $244 $60 Analytical Lab $184 $244 $60 Maintenance $184 $244 $60 Detoxification $184 $244 $60 Maintenance and Detoxification $184 $244 $60 Compounder/Maintenance $184 $244 $60 Compounder/Detoxification $184 $244 $60 Compounder/Maintenance/ Detoxification $184 $244 $60 Distributor (chemical and controlled substances) $1,147 $1,526 $379 Reverse distributor $1,147 $1,526 $379 Importer (chemical and controlled substances) $1,147 $1,526 $379 Exporter (chemical and controlled substances) $1,147 $1,526 $379 Manufacturer (chemical and controlled substances) $2,293 $3,052 $759

4.5.2 Analysis Analysis of Fees In the weighted

- ratio option, the registration fees for all registrant groups increase by 33
percent from current fees , although the absolute dollar amount may differ. The proposed new22

registration fees range from $244 annually (or annual equivalent) to $3,052. Registration fees are collected by location and by registered business activity. Most small registrants are expected to pay a single registration fee of $ 244 ($ 60 annual increase), $1,526 ($379 annual increase) or $3,052 ($759 annual increase)

. ( See Chapter 6 for analysis of proposed fees as percentage of revenue )

. Registration fees for all registrant groups increase by 33 percent and , as a result, there is
no d isparity in the fee increase among registrant groups.

Evaluation of Methodology The weighted

- ratio methodology , much like the flat fee , is straightforward and easy to
understand , b ut unlike the flat fee , this method applies historic weight ed ratios to di fferentiate fees among registrant groups. Additionally , the fees calculated u sing this methodology are
similar to fees calculated in the past

- based option , which allocates historical pre

- registration and scheduled investigations costs to registrant groups

. Finally, this method does not create a
dis proportionate fee increase in any registrant groups.

Conclusion DEA selected Option 4 to calculate the proposed new fee structure. This approach has
been used sin ce Congress established registrant fees and continues to be a reasonable reflection of differing costs. The registration fees under the weighted

- ratio option result in differentiated
fees among registrant groups , where registrants with larger revenues pay higher fees than registrants with lowe r revenues. Furthermore, the weighted

- ratio does not creat e a disparity in
the relative increase in fees from the current to the proposed fees

. The weighted ratios used by DEA to calculate the proposed fee have proven effective and reasonable over time. Additionally, the selected calculation methodology accurately reflects the differences in activity level, notably23

in pre
- registration and scheduled investigations by registrant category; for example, these costs are greatest for manufacturers. DEA select ed t his option because it is the only option that
resulted in “reasonable” fees for all registrant groups.24



### CHAPTER 5: IMPACT ANALYSIS OF P ROPOSED FEE
Executive Order 12866 provides that agencies must submit a regulatory impact analysis only for those regulatory a ctions that are "significant

. " A regulatory action is significant if it is anticipated

to: (1) h ave an annual effect on the economy of $100 million or more , (2) adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities , (3) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency , (4) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs , or the rights and obligations of recipients thereof , or (5) raise s novel legal or policy issues ar ising out of legal mandates, the President’s priorities , or the principles set forth in Executive Order 12866. 4

DEA has concluded that this rule is a significant regulatory action reviewed by OMB
pursuant to Executive Order 12866 (58 FR 51735, October 4, 1993) as supplemented and affirmed by Executive Order 13563 (76 FR 3821, January 18, 2011). However, this rule is not an economically significant regulatory action because it does not meet the criteria for such actions including: an annual effect on the economy of $100 million or more, or adversely affecting in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or
communities.

5.1 ANNUAL ECON OMIC EFFECT LESS THA N $100 MILLION DEA estimates that it will collect approximate $807,101,383 in registration fees at
current fee levels between for the FY 2012

– FY2014 period. This estimated collection amount is insufficient to fully fund the DCP as m andated by law. Therefore, DEA proposes new fees

4 E.O. 12866. See also Office of Management and Budget, Office of Information and Regulatory Affairs , “Regulatory Impact Analysis: Frequently Asked Questions,” February 7, 2011.25

that are estimated to result in a total collection of $1,072,100,474 for th e Fiscal Year 2012

- 2014 period. The estimated increase in collections is $264,999,091 for the three year period. The

average annu al increase in estimated registration fee collections is $88,333,030 . Therefore, the annual effect on the economy is less than $100 million and does not meet the “annual effect on the economy of $100 million or more” criteria for “significant” regulatory action.

5.2 NO MATERIAL ADVERSE AFFECT The proposed fee, if implemented, is expect ed to have two levels o f impact. Initially, the increase in the fee will impact the registrants. Then the fee increase or portion of the fee increase is expected to eventually pass on to the general public. To be analytically conservative, the analysis below assumes that the impact of the fee increase is absorbed entirely by the registrants.

5.2.1 Registration Fees as Business Expense

DEA assumes that t he registration fees are business expenses for all registrants. As a result, t he increase in the fee will be dampened by reduc ed tax liability , as a result of the increase in registration fee expense. For example, if a practitioner pays an additional $60 per year in registr ation fees and the combined feder al and state income tax is 35 percent , the net cash impact is $39, not $60. The additional $60 causes income/profit to decrease by $60, decreasing the tax liability by $21. The net cash outlay is $39

. 5

5.2.2 Registration Fees as Percentage of Income DEA examined the proposed fees as a percentage of income for physicians, dentists, and physician ’ s assistants. The fee increase is expected to have the greatest affect on small

5 This example is for illustration purposes only. Each entity should seek competent tax advice for tax consequences of the proposed rule.26

businesses

. The m ajority of practit ioners and mid

- level practitioners work in small businesses

. Physicians, dentists, and physician’s assistants reflect a representative sub

- group of the practitioner and mid

- level practitioner registrant groups. The effect of the fee increase is
diminishe d by any increase in registrant income.
The table below describes the average income for physicians , dentists, and physician’s
assistants from 2004 to 2012 . The table below also reflects the impact of the proposed fee increase as a percentage of average i ncome. This analysis assumes that the fee increase is absorbed personally by each practitioner/mid

- level practitioner. The analysis ignores the dampening effect of registration fees as a business expense and the potential that the fee increase might be p ass ed on to customers

.

Table 8: Fee as Percentage of Income FY 2004

- 2012

Average Income 6 Fee Fee as % of Average Income

Year Physicians Dentists Physician Assistants (Annual

Basis) Physicians Dentists Physician Assistants 2004 137,610 130,300 68,780 2005 138,910 133,680 71,070 2006 142,220 140,950 74,270 184 0.129% 0.131% 0.248% 2007 155,150 147,010 77,800 184 0.119% 0.125% 0.237% 2008 165,000 154,270 81,610 184 0.112% 0.119% 0.225% 2009 173,860 156,850 84,830 184 0.106% 0.117% 0.217% 2010 179,370 163,901 87,933 184 0.103% 0.112% 0.209% 2011 187,154 169,632 91,230 184 0.098% 0.108% 0.202% 2012 194,939 175,363 94,528 244 0.125% 0.139% 0.258%
Increase from 2007 to 2012 26% 19% 22% 33% 6% 11% 9%
Increase from 2006 to 2012 37% 24% 27% 33%

- 7% 3% 4%
* Average income data for 2004 to 2009 is provided by the Bureau of Labor Statistics. 2010 to 2012 are estimated figures based on linear regression, where a straight

- line increase is calculated from years 2004 to 2009, then usin g the line to estimate average income for 2010 to 2012.

6 Source: Bureau of Labor Statistics, http://www.bls.gov

.27

In 2007, the current fee of $ 184 on an annual basis represents 0. 119 percent , 0. 125
percent , and 0. 237 percent of annual income for physicians, dentists, and physician’s assistants respectively. In 2012, the proposed fee of $ 244 ( on an annual basis ) would represent approximately 0. 125 percent , 0. 139 percent , and 0. 258 percent of annual income for physicians, dentists, and physician’s assistants respectively. While proposed fees are 33 percent a bove the current fees implemented at the end of 2006, average incomes for physicians, dentists, and physician’s assistants increased 26 percent , 19 percent , and 22 percent respectively. This estimated increase in average income dampens the effect of the f ee increase as a percentage of average income. The 33 percent fee increase as a percentage of average income is six percent for physicians , 11 percent for dentists , and nine percent for physician’s assistants from 2007 to 2012. The diminishing effect is more apparent when comparing 2012 to 2006, the year for which the current fee was calculated and implemented. Additionally, as the average income grows in 2013 and 2014, the income adjusted fees are not any h igher than in recent history.

5.2.3 Fee
- Exempt Regist rants Exempt from the payment of registration fees are a ny hospital or other institution that is operated by an agency of the United States, of an y S tate, or any political subdivision of an agency thereof . Likewise, an individual who is required to obtain a registration in order to carry
out his/ her duties as an official of a f ederal or State agency is also exempt from registration fees

. 7 Fee exempt registrants are not affected by the proposed fees.

7 See 21 CFR 1301.21 for complete fee exemption requirements.28

5.2.4 Conclusion DEA concludes that this pro posed rule is not a significant regulatory action because it does not result in a materially adverse effect on the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal

gover nments or communities. 8 The proposed fee, if implemented, would initially affect all fee paying registrants. The fees may eventually be passed on to the general public , diminishing the impact of the proposed fee increase on individual registrants

. T he i mpact of the proposed fee on registrants is also diminished by a reduction in tax liabilities and an increase in average income

. Additionally, h ospitals a nd institutions operated by f ederal, State, or local governments and for their employees are exempt f rom registration fees. 9 Moreover, DEA believes that this proposed
rule will enhance public health and safety.

8 In accordance with 25 U.S.C. 1616q, employees of a tribal health or urban Indian organization are exempt from “payment of licensing, registration, and any other fees impo sed by a Federal agency to the same extent that officer of the commissioned corps of the Public Health Service and other employees of the Service are exempt from those fees.” To the extent that any hospital or other institution operated by or any individu al practitioner associated with
an Indian Tribal Government must pay fees, the economic impact is not substantial. 9 See 21 CFR 1301.21 for complete requirements for exemption of registration fees.29



### CHAPTER 6: IMPACT OF PROPOSED R ULE ON SMALL ENTITIE S

In accordance with the Regulatory Flexibility Act of 1980 (5 U.S.C. 601

- 612) (RFA),
DEA has evalua ted the impact of this rule on small entities and has determined that this rule will not have a significant economic impact on a substantial number of small entities. As discussed in Chapter 3, most DEA registrants are small entities under Small Business Administration (SBA) standards. DEA has concluded that the proposed adjustments in registration fees will not have a significant effect on these small business entities.

6.1 IMPACT OF PROPOSED F EES ON SM ALL BUSINESSES To assess whether the fees could impose a significant economic impact on a substantial number of small entities, DEA compared the proposed fees as a percentage of revenue in 2012 to
the current fees as a percentage of revenue in 2007

. 10 DE A has determined that the rule will not have a significant economic impact on a substantial number of small entities. Economic impact by major registrant classes is discussed in the following sections. Practitioners and mid

- level practitioners represent 92.9 percent of all registrants and nearly all practitioners and mid

- level practitioners are employed by small businesses pursuant to SBA standards. Among all registrants, practitioners and mid

- level practitioners have the lowest annual revenues. While

t here are many specialists listed in the Bureau of Labor Statistics income data, incomes for physicians, dentists, and physician’s assistants are representative of the practitioner and mid

level practitioner registrant groups.
Below is the table from Chapter 5.

10 2007 is the first full year of the previous registration fee increase. DEA proposes that 2012 be the first full year of the proposed new fee increase. Due to annual increases in annual income, the fees as percentage of income would also change. Comparin g the fees to annual income at the first full year of fee increase would be a like comparison.30 Fee as Percentage of Income FY 2004

- 2012
Average Income 11 Fee Fee as % of Average Income

Year Physicians Dentists Physician Assistants (Annual

Basis) Physicians Dentists Physician Assistants
2004 137,610 130,300 68,780
2005 138,910 133,680 71,070
2006 142,220 140,950 74,270 184 0.129% 0.131% 0.248%
2007 155,150 147,010 77,800 184 0.119% 0.125% 0.237%
2008 165,000 154,270 81,610 184 0.112% 0.119% 0.225%
2009 173,860 156,850 84,830 184 0.106% 0.117% 0.217%
2010 179,370 163,901 87,933 184 0.103% 0.112% 0.209%
2011 187,154 169,632 91,230 184 0.098% 0.108% 0.202%
2012 194,939 175,363 94,528 244 0.125% 0.139% 0.258% Increase from 2007 to 2012 26% 19% 22% 33% 6% 11% 9% Increase from 2006 to 2012 37% 24% 27% 33%

- 7% 3% 4%

For practitioners and mid

- level practitioners , the proposed new fee, on an annual basis, is $244; the annual increase is $60 from the current fee. Physicians constitute the largest percentage of all practitioner registrants. Based on Bureau of Labor Statistics annual salary data,
the current fee in 2007, the first full year of the current fee, represented 0.119 percent , 0.125
percent , and 0.237 percent of annual income for physicians, dentists, and physician’s assistants

respe ctively. In 2012, the proposed fee of $244, on an annual basis, is estimated to be

11 Source: Bureau of Labor Statistics, http://www.bls.gov . Average income data for 2004 to 2009 is provided by the Bureau of Labor Statistics. 2010 to 2012 are estimated figures based on linear regression, where a straight

- line increase is calculated from years 2004 to 2009, then using the line to estimate average income for 2010 to 2012.31

approximately 0.125 percent , 0.139 percent , and 0.258 percent of annual income for physicians, dentists, and physician’s assistants respectively. The annual impact of the proposed rule is the difference between the proposed fee as a percentage of income in 2012 to the current fee as a percentage of income in 2007, which are 0.007 percent , 0.014 percent , and 0.022 percent for physicians, dentists, and physician’s assistant s respectively. As discussed in Chapter 5 , there are additional mitigating factors not included in the above analysis. The proposed fee increase may be passed on to consumers. The fees are generally treated as businesses expenses where after tax impact is diminished. For consideration of the impact of the proposed fee increase on small businesses, DEA analyzed the proposed registration fee as a percentage of annual income for a representative group: physicians, dentists, and phys ician’s assistants. The impact of the proposed fees, $60 per year increase from current fees , were found to be 0.007 percent , 0.014 percent , and 0.022 percent of annual income for physicians, dentists, and physician’s assistant s respectively, when
normali zed for income increases. In consideration of the calculated impact and potentially further mitigating factors discussed in Chapter 5, DEA concludes that the proposed rule will not have a significant economic impact on a substantial number of small entiti es
.

6.2 IMPACT OF PROPOSED F EES ON OTHER R EGISTRANTS
6.2.1 Impact on Pharmacies Pharmacies represent 4.8 percent of all registrants. Many pharmacies are parts of chains, and some chains have thousands of stores. A corporate chain has the choice of having each sto re in the chain pay a registration fee on the individual location’s behalf or having the corporation pay for all locations at one time. Regardless of how the fee is paid, registration fee s for a large
chain can be substantial . For example, the proposed r egistration fee for each pharmacy is $24432

on an annual basis . Therefore, a chain with 4,000 stores would have a combined annual fee equivalent of $976,000. The proposed increase in fee s would be $240,000. S uch fees are large, but compared to revenue, th ey are a much smaller percentage than those for physicians and
dentists. The incremental increase in the fee from current fees as a percentage of revenue is even
lower. Table 9 shows the proposed new fees (annual equivalent) as percentage of average yearly
revenue for various types of pharmacies.

Table 9 : Proposed New Fees as Percentage of Revenue for Pharmacies

Source: 2007 Economic Ce nsus
. ** Current and Proposed Fees divided by average revenue in 2007, first full year the current fee.
6.2.2 Impact on Manufacturers and Distributors The impact of the proposed fee increase on manufacturers and distributors is minimal. For manufacturers, the proposed fee as a percentage o f revenue ranges from 0.000 to 0.022 percent of a manufacturing establishment. For distributors, it is slightly higher: 0.002 to 0.056
percent. The incremental increase in the fee from current fees as a percentage of revenue is even
lower. Manufacturers ’ and distributors’ fees are high relative to practitioners’ fees, but they are a much lower fraction of revenue than is the case for individual practitioners. Most manufacturers and distributors do not qualify as small businesses under SBA standards.
Ev en for manufacturers and distributors that have multiple facilities and pay a registration fee for each facility, the percentage of revenue (economic impact) does not change. The percentages cited above are based on average revenue per establishment; incr easing the number33

of establishments will not change the fee as a fraction of revenue.
Table 10 : New Fees as Percentage of Annual Revenue for Manufacturers and Distributors

Source: 2007 Economic Ce nsus
. ** Current and Proposed Fees divided by average revenue in 2007, first full year of the current fee.34



### CHAPTER 7: COST

- BENEFIT ANALYSIS OF PROPOSED REGULATORY ACTION

In developing the Cost

- Benefit Analysis (CBA), DEA focused on the cost s and benefit s
that accrue to citizens and residents of the United States over the three year period, 2012 to 2014. The costs and benefits are measured against a baseline to capture the incremental costs and benefits of the proposed rule.

7.1 COST S OF THE PROPOSED R ULE

The cost of the proposed rule is the incremental increase in the combined registration fees paid by registrants. DEA estimates that it will collect approximate ly $807,101,383 in registration fees at current fee levels for the FY 2012

– FY2014 period. This figure, $807, 101,383 , represents the baseline. The proposed fees are estimated to result in a total collection of $1,072,100,474 for Fiscal Year s 2012

- 2014. The estimated increase in collections above the baseline is $264,999,091 for the three year period. Thus, t he average annual increase in estimated registration fee collections is $88,333,030. Therefore, the cost of the proposed rule is $88,333,030 per year during FY 2012

– FY2014. Although registration fees are paid by registrants, some or all of the registrati on fees are passed on to the citizens and residents of the United States. For this CBA, DEA assumes the annual cost of the proposed rule is $88,333,030.

7.2 B ENEFIT S OF THE PROPOSED R ULE Benefits of the proposed rule are an extension of the benefits of the DCP. The DCP is a strategic component of DEA that carries out the mandates of the CSA and its regulations to prevent, detect, and eliminate the diversion of controlled substances and listed chemicals into the35

illicit market while ensuring a sufficient sup ply of controlled substances and listed chemicals for legitimate medical, scientific, research, and industrial purposes.
The citizens and residents of the United States bear an enormous cost from the diversion
of controlled substances and listed chemicals into the illicit market. T o capture the benefit s of the proposed rule, DEA estimated the cost of diversion to the citizens and residents of the United
States : (1) at a baseline , without implementation of the proposed rule , and (2) under the proposed
rule. DEA used “Economic Costs of Nonmedical Use of Prescription Opioids” 12 and “Estimated Costs of Prescription Opioid Analgesic Abuse in the United States in 2001” 13 as primary sources for obtaining costs to the citizens and residents of the U. S. associated wit h the diversion of controlled substances and listed chemicals into the illicit market. While opioids discussed in the publications represent a subset of all controlled substances regulated by the DCP, the cost estimates in the publication s represent a con servative estimated cost of diversion of all controlled substances and listed chemicals from a reputable source. The researchers gathered data from numerous sources including emergency department information from the Drug Abuse Warning Network (DAWN), nonm edical use of prescription opioids information from the National Survey on Drug Use and Health (NSDUH), substance abuse treatment information from the Treatment Episode Data Sets (TEDS), statistical information from the U.S. Department of Justice Bureau of Justice Statistics, Federal Bureau of Investigation, National Forensic Laboratory, and Drug Enforcement Administration Budget Summaries. Data related to the total cost of treatment for the abuse of prescription opioids also

12 Clin J Pain (The Clinical Journal of Pain), Volume 27, Number 3, March/A pril 2011. 13 Clin J Pain (The Clinical Journal of Pain), Volume 22, Number 8, October 2006.36

included input from the Substa nce Abuse and Mental Health Services Administration at the U.S. Department of Health and Human Services. According to the research published in The Clinical Journal of Pain , cost s associated
with the nonmedical use of prescription opioids increase d from $ 8.6 billion in 2001 to $53.4
billion in 2006.

Table 11: U.S. Costs of Nonmedical Use of Prescription Opioids 2001 and 2006

($ million) 2001 2006 % Increase Total Cost $ 8,600 $ 53,400 521% Health Care $ 2,600 $ 3,200 23% Criminal Justice 14 $ 1,400 $ 8,200 486% Workplace & Lost Productivity $ 4,600 $ 42,000 813%

The baseline cost of diversion to the citizens and residents of the Unite d States is the estimated cost in 2012 without the proposed rule. The increase from $8.6 billion in 2001 to $53.4 billion in 2006 represents a compound annual growth rate (CAGR) of 44 percent . Using
CAGR of 44 percent, the estimated cost of nonmedical use of prescr iption opioids would be $477.7 billion in 2012. Although it is difficult to assume that the cost will continue to grow at this rate and nearly impossible to accurately estimate the baseline cost, it would not be an exaggeration to say that the cost of non medical use of prescription opioids to the U.S. public is enormous and accelerating. Since $477.7 billion is based on only two data points, it is not at the desired level of accuracy for estimating the baseline cost of nonmedical use of prescription opio ids. However, it

14 DCFA budget is understood to be included in the Criminal Justice cost figure. However, the DCFA budget is relatively low compared to the total Criminal Justice an d even lower compared to the Total Cost. Therefore, the analysis does not back out the DCFA budget because it is not material to the discussion and to maintain integrity of the published research.37

is reasonable to assume that the cost to the citizens and residents of the United States is greater than $53.4 billion.
In FY 2010, the most recent year for which a full year of data is available, DEA initiated 1,011 criminal diversion in vestigations, imposed 1,519 administrative/civil/criminal sanctions, and conducted 3,553 scheduled investigations. In FY 2012 DEA estimates that it will have 1,802 administrative/civil/criminal sanctions and 3,906 scheduled investigations

. 15 DEA believes that each administrative/civil/criminal sanction prevents the diversion of controlled substances and
listed chemicals into the illicit market and that scheduled investigations deter the diversion of
controlled substances and listed chemicals into the illic it market.
An increase in scheduled investigations and administrative/civil/criminal sanctions , in
addition to added resources for criminal diversion investigations , is expected to , at a minimum, slow down the growth in the cost of nonmedical use of prescr iption opioids and diversion as a
whole.
Th is proposed rule provides additional resources to enhance the performance of the DCP and slow down the growth in the cost of controlled substances and listed chemicals diverted into the illicit market. Although difficult to accurately quantify, the benefit of th is proposed rule is the slowdown in the growth of the cost of diversion of controlled substances and listed chemicals
into the illicit market.

7.3 EVALUATION OF COSTS AND BENEFITS OF PROPOSED R ULE (THRESHOLD ANALYSIS) In evaluating the costs and benefits of the proposed rule, the annual cost of the proposed rule of $88,333,030, which represents 0.17 percent of $53.4 billion, is compared with the

15 FY 2012 Performance Budget Congressional Submission, p. DEA

- 70.38

anticipated reduction in the growth rate of costs associated wit h diversion of controlled
substances and listed chemicals into the illicit market. The CBA uses the costs associated with nonmedical use of prescription opioids as a conservative estimate of the total cost associated
with diversion of controlled substance s and listed chemicals into the illicit market. It is preferable to conduct a discounted cash flow analysis where the costs and benefits are quantified and the net benefits are calculated and presented in today’s dollar value. However, the baseline cost s associated with diversion of controlled substances and listed chemicals into the illicit market is unreliable. Therefore, a quantitative analysis is not possible and a threshold analysis is utilized. The threshold analysis considers whether the benefits o f the proposed rule are greater than or equal to the cost of the proposed rule

.

As discussed above, t he cost of the proposed rule is $88,333,030 per year.

The b enefits of the proposed rule are represented as the difference between the cost s
associ ated with diversion of controlled substances and listed chemicals into the illicit market at
the baseline and the cost s associated with the diversion of controlled substances and listed
chemicals into the illicit market under the propose d rule.39

The basel ine cost s associated with the diversion of controlled substances and listed
chemicals into the illicit market is estimated to be at least $53.4 billion (the cost associated with the nonmedical use of prescription opioids in 2006 )

.

Rearranging the equation,

Therefore , the break

- even would occur if the cost s associated with diversion of controlled
substances and listed chemicals into the illicit market are reduced to $0.088 billion from a baseline of “at least $53.4 billion .”
DEA concludes that th e proposed rule will reduce the cost s of the diversion of controlled
substances and listed chemicals into the illicit market for the citizens and residents of the United40

States by at least $0.088 billion, and therefore the proposed rule will have a net pos itive benefit
for the citizens and residents of the United States.