Opinion ID: 187051
Heading Depth: 2
Heading Rank: 2

Heading: Agency Proceedings Against Wedgewood

Text: In early 2003, DEA began investigating Wedgewood after receiving reports that Wedgewood was ordering controlled substances in unusually large quantities. See In re Wedgewood Vill. Pharmacy, Docket No. 04-08, at 4-5 (Mar. 4, 2005) (JA 935-36) (ALJ Dec.) (describing reports). DEA obtained an administrative inspection warrant to search Wedgewood's Sewell, New Jersey facility. DEA executed the warrant between March 12-14, 2003 and collected evidence that it believed demonstrated that Wedgewood was both manufacturing and distributing controlled substances. See Order to Show Cause 1-5 (JA 67-71) (describing evidence). For example, according to DEA and FDA investigators, Wedgewood had large quantities of bulk drug substances to manufacture large quantities of unapproved drug products as well as large scale equipment, neither of which, they concluded, was consistent with traditional retail pharmacy activities. [4] Report of Investigation 2, 7 (JA 757, 762). The inspectors also examined Wedgewood's Log of Scripts. The Log, which contained a record of all controlled substances sold by Wedgewood between January 1, 2002 and December 31, 2002, indicated that Wedgewood routinely delivered controlled substances to another practitioner rather than directly to the ultimate user, using prescriptions that listed the same person as both prescribing doctor and patient. [5] See Log of Scripts (JA 349-446); see also Wedgewood Vill. Pharmacy; Revocation of Registration, 71 Fed.Reg. 16,593, 16,594 (DEA Apr. 3, 2006) (JA 976) (Over 95% of [Wedgewood's] sales were to physicians or veterinarians documented by what the pharmacy called prescriptions which contained the name of the physician or veterinarian as the patient.). Under DEA's reading of the CSA, a retail pharmacy may dispense controlled substances only to the ultimate user and not to another practitioner. See id. at 16,596 (JA 979); see also 21 U.S.C. § 802(10) ([D]ispense means to deliver a controlled substance to an ultimate user. . . .); id. § 802(27) ([U]ltimate user means a person who has lawfully obtained . . . a controlled substance for his own use . . . or for an animal owned by him. . . . ). Following the inspection, DEA informed Wedgewood by letter that Wedgewood was not configured as a typical retail pharmacy, but [rather] as a drug manufacturing and distribution facility, and that Wedgewood was operating in a manner . . . outside the scope of [its] registration as a [practitioner]. DEA Letter, Aug. 21, 2003, at 1 (JA 79). DEA ordered Wedgewood to immediately cease and desist manufacturing and distributing activities outside the scope of its registration or risk revocation of its registration pursuant to 21 U.S.C. § 824. [6] Id. Despite the cease and desist order, Wedgewood continued to compound controlled substances for approximately two months as Wedgewood challenged DEA's decision. Wedgewood Vill. Pharmacy, 71 Fed.Reg. at 16,594 (JA 975). It eventually ceased operation after it moved to a new facility in Swedesboro, New Jersey and DEA declined to allow it to modify its registration to reflect its new address pursuant to 21 C.F.R. § 1301.51. See ALJ Hr'g Tr. 35-41 (JA 12-18) (discussing Wedgewood's inability to handle controlled substances following DEA's denial of Wedgewood's requested modification). Id. [7] On September 8, 2003, DEA began proceedings to revoke Wedgewood's registration as a retail pharmacy by issuing an order to show cause (Order). See Order to Show Cause 1 (JA 67). The Order charged, inter alia, that Wedgewood was manufacturing controlled substances in violation of Wedgewood's registration as a retail pharmacy. See id. at 1-2 (JA 67-68). The Order explained that [a]ll compounding of drugs must be patient specific, and dispensed only by the compounder to that patient identified in the order. Id. at 1 (emphasis added). By compounding multi-dosage batches of controlled substances pursuant to orders which did not identify a specific patient, Wedgewood exceeded its registration. See id. at 4 (JA 70) (noting most of Wedgewood's sales were made pursuant to orders listing prescribing veterinarian or physician as patient). The Order also explained that [a] drug compound prepared . . . for distribution to practitioners . . . is considered to be a manufacturing activity under . . . the Controlled Substances Act. Id. at 1 (JA 67). Because Wedgewood delivered controlled substances to other practitioners (i.e., veterinarians and physicians), the controlled substances were manufactured and not compounded. See id. at 4 (JA 70) (noting that Wedgewood routinely distributed office stock to other practitioners). Accordingly, DEA informed Wedgewood that it intended to revoke Wedgewood's registration if Wedgewood did not request a hearing within thirty days. See id. at 1, 6 (JA 67, 72). Wedgewood timely requested a hearing which was held before a DEA Administrative Law Judge (ALJ) on January 26-28, 2004. Approximately one year after the hearing, the ALJ issued her decision, concluding that Wedgewood had manufactured and distributed controlled substances . . . without a valid DEA registration authorizing such activities. ALJ Dec. 39 (JA 970). The ALJ further determined that Wedgewood's continued registration would not be in the public's interest. Id. As a framework for her analysis, the ALJ used the five-factor public interest test set forth in 21 U.S.C. § 823(f). Id. at 24-25 (JA 955-56). [8] She determined that three of the five factors weighed in favor of revoking Wedgewood's registration. [9] First, regarding factor twoWedgewood's experience dispensing controlled substancesthe ALJ found that Wedgewood had violated two DEA regulations. Under 21 C.F.R. § 1306.04(b), [a] prescription may not be issued in order for [an] individual practitioner to obtain controlled substances for supplying the individual practitioner [i.e., a veterinarian or physician] for the purpose of general dispensing to patients. The ALJ noted the testimony of Wedgewood's owner, George Malmberg, before the New Jersey Pharmacy Board, to the effect that the majority of the controlled substances dispensed by Wedgewood `would be used by physicians and veterinarians for office use in their practice, rather than by an individual patient seeking medications . . . for [his] own ingestion.' [10] Id. at 21 (JA 952). The ALJ also focused on the so-called 5% Rule. Id. at 28-29 (JA 959-60). Under 21 C.F.R. § 1307.11, a practitioner may dispense controlled substances to another registered entity, provided the total number of dosage units thus dispensed does not exceed 5% of the total number of controlled substances dispensed by that registrant [during the calendar year]. ALJ Dec. 28 (JA 959) (citing 21 C.F.R. § 1307.11(a)(4)). Relying on the entries in Wedgewood's Log of Scripts, the ALJ determined that during the calendar year 2002, Wedgewood dispensed 7,445 prescriptions which accounted for a total of 1,083,154 dosage units of controlled substances. Of this number 1,017,392 dosage units were distributed pursuant to prescriptions written by a physician, with the named patient also being the physician. ALJ Dec. 29 (JA 960). Based on the Log, the ALJ concluded that Wedgewood had plainly violated the 5% Rule. Id. at 29 (JA 960). Regarding factor fourcompliance with state and federal lawthe ALJ considered, inter alia, whether Wedgewood was manufacturing or compounding controlled substances. The ALJ noted that, although the CSA defines manufacturing, it does not define compounding. Id. at 31 (JA 962). Consequently, the ALJ look[ed] to the FDA's regulations for guidance in defining compounding. Id. According to FDA guidelines, compounding is the preparation of a customized medication for an individual patient in response to a licensed practitioner's prescription.  Id. (quoting FDA's Compliance Policy Guide) (emphases added). The ALJ concluded that Wedgewood was routinely filling orders for veterinary medicines in bulk rather than pursuant to a prescription from a licensed physician for a specifically identified patient's use and therefore Wedgewood was manufacturing, not compounding, controlled substances. Id. at 32 (JA 963). Finally, with regard to factor fiveother conduct that may threaten the public health and safetythe ALJ noted that Wedgewood did not keep records of regulated transactions, it had overages and shortages of controlled substances, it had been untruthful during the DEA investigation and that it had challenged the DEA's authority to regulate [its] activities. Id. at 37-38 (JA 968-69). The ALJ concluded that the Government ha[d] clearly met its burden of proof and recommended revocation of Wedgewood's registration as a practitioner. Id. at 39 (JA 970). On April 3, 2006, over one year after the ALJ's decision, DEA's Deputy Administrator (DA) issued the agency's final decision, which adopted in full the ALJ's findings and recommendations. Wedgewood Vill. Pharmacy, 71 Fed.Reg. at 16,593 (JA 975). The DA's decision characterized the central issue as whether Wedgewood was compounding as an adjunct to dispensing controlled substances in the course of retail pharmacy practice or manufacturing and distributing controlled substances as those terms are defined in the Controlled Substances Act. Id. at 16,594-95 (JA 976-77). The DA concluded that Wedgewood's actions constituted manufacturing and distributing for two reasons. First, Wedgewood's practice of not preparing or compounding medications . . . on an individualized patient basis was inconsistent with the traditional view of compounding. Id. at 16,955 (JA 978). Using the Supreme Court's description of compounding in Thompson v. Western States Medical Center, see supra note 3, the DA explained that to be exempt from the definition of manufacturer under the CSA a DEA practitioner registrant must be engaged in compounding controlled substances on an individual patient basis. That is, a pharmacy must receive a prescription for a specific patient from a physician or other individual practitioner. . . . Since the evidence in this case clearly demonstrates that [Wedgewood] is not preparing or compounding medications containing controlled substances on an individualized patient basis, [Wedgewood's] activities constitute manufacturing under the CSA and it must be registered as a manufacturer to conduct such activity. Id. (emphases added). Second, the DA reasoned that under the CSA definition of dispensing, a practitioner may deliver controlled substances only to an ultimate user. Because [a] physician or [a veterinarian] who receives controlled substances . . . is not the ultimate user, but another DEA practitioner registrant, Wedgewood's practice of delivering controlled substances to other practitioners for the latter's administering to their respective patients constituted distribution and not dispensing. Id. Accordingly, the DA adopted the ALJ's recommendation to revoke Wedgewood's registration. [11] Wedgewood timely petitioned for reconsideration. Recons. Letter, Apr. 18, 2006, at 1 (JA 989). In its request, Wedgewood advanced the new argument that standard procedures for veterinary medicine practice (which is approximately 95% of Wedgewood's controlled substance sales) are different than the protocol for human health care. Id. Wedgewood explained that [u]nlike human health care physicians, equine veterinarians usually do not treat animals on an individual basis. Id. at 3 (JA 991). Instead, [v]eterinarians, particularly those with an equine practice, travel to their patients, examine and diagnose them, and administer the appropriate medicines on site, a procedure that requires them to have a variety of medicines at their immediate disposal. Id. According to Wedgewood, DEA's interpretation of dispensing threatened to severely handicap[] the practice of equine veterinary medicine by making it difficult for a veterinarian to administer controlled substances to horses at the stables. Id. at 2 (JA 990). Furthermore, the requirement that a practitioner must dispense controlled substances directly to the ultimate user (i.e., the animal's owner) runs counter to the goal of the CSA because it is a considerably more secure procedure and provides better protection against drug diversion for a licensed veterinarian to possess and be responsible for the controlled substances rather than to send medications for each animal to the farm or stable where any worker has access to them. [12] Id. at 3 (JA 991). On June 7, 2006 the DA denied Wedgewood's request for reconsideration, giving two reasons therefor. Recons. Letter Jun. 7, 2006, at 1 (JA 994). The DA first noted that section 802(21) of the CSA makes no distinction among physicians, veterinarians, dentists and researchers as practitioners. Id. Second, the DA concluded that, in any event, a veterinary exception was unnecessary because the law and regulations provide an adequate mechanism for any practitioner, including a veterinarian, to obtain controlled substances for general office use . . . [e.g.] obtaining controlled substances to be dispensed to a herd or a large group of animals as opposed to a specific animal. Id. A practitioner, including a veterinarian, may obtain controlled substances for general dispensing from any properly registered manufacturer, distributor or pharmacy [subject to the 5% Rule]. Id. Therefore, the DA concluded, no exception was necessary to accommodate the needs of veterinary practice. Wedgewood timely petitioned this court for review of the DA's revocation decision (06-1156) as well as the denial of Wedgewood's petition for reconsideration (06-1196). We consolidated the two petitions for briefing and argument. Order Granting Mot. to Consolidate, June 13, 2006.