Masters Pharmaceutical – DEA Case

The Facts About Masters’ Battle with the DEA
* * * UPDATED ON OCTOBER 15, 2015 * * *

On October 15, 2015 the United States Court of Appeals for the D.C. Circuit granted Masters’ Motion for a Stay Pending Appeal. This means that the DEA’s Final Order will not take effect, and that Masters may continue to distribute all controlled substances while the appeal is pending. Before it could grant the Stay, the Court had to conclude both that Masters has a “likelihood of success on the merits” of its appeal, and that the public would not be harmed if Masters were permitted to continue distributing controlled substances. Although the case is far from over, it is clear from this action that the Court has serious concerns about the DEA’s case against Masters.

In August 2013, DEA issued Masters a “Show Cause Order” alleging that, between 2009 and 2011, Masters’ sold oxycodone to eight of its retail pharmacy customers that it “knew or should have known” were engaged in illegal diversion. The Show Cause Order was based entirely on an investigation conducted by Diversion Investigator James Rafalski, who operates from the DEA’s Detroit Field Office. Investigator Rafalski made exactly one visit to Masters before reaching his conclusions about Masters. And, although he allegedly spent months reviewing the customer files Masters provided to him, he never once asked Masters to explain any of the information contained in those files, or provide its reasoning for the actions the company took. He also relied on the DEA’s analysis of ARCOS data that was inaccurate, misleading and full of statistical errors. Not surprisingly, Investigator Rafalski’s investigation was riddled with mistakes, contradictions and misinterpretations of Masters’ records.

With the Show Cause Order the DEA sought to revoke Masters’ ability to distribute any controlled substances from its Kemper Springs Drive facility. Masters’ promptly requested a full hearing which was held before Administrative Law Judge Gail Randall in February and March 2014. Judge Randall has years of expertise specifically hearing and deciding cases involving the DEA and the distribution of controlled substances.

Masters’ knowledge that it had done nothing wrong, and its determination that it would not cave in to the DEA’s pressure paid off with a resounding victory at trial.

In June 2014, Judge Randall issued a comprehensive 200-plus page decision in Masters’ favor. She found that the data underlying the DEA’s case against Masters was “hopelessly unreliable.” She also found that, in 2009, the DEA reviewed and found no fault with Masters’ proprietary Suspicious Order Monitoring System (SOMS), or its written due diligence policies and procedures. Because the DEA had agreed that it would advise Masters in writing of any deficiencies it found during its “Compliance Review” of Masters, Masters was entitled to rely on the DEA’s silence as proof that it had adequately vetted its customers, that it had not failed to report any suspicious orders, and that its policies and procedures were appropriate

Judge Randall found that DEA’s witnesses had repeatedly changed their testimony, and had misrepresented key facts. Meanwhile, she found Masters’ witnesses highly credible. Based on expert witness testimony Masters presented, Judge Randall found that the orders placed by the eight pharmacies at issue in the case were not unusually large, and that DEA had made obvious critical errors in the way it examined Masters’ sales data.

Judge Randall also found that Masters’ sales of controlled substances declined substantially between 2009 and 2011 as it implemented and enforced its SOMS and controlled drug policies and procedures. The Judge acknowledged that Masters had voluntarily ceased selling all controlled substances to Florida pharmacies in July 2011, and that it had reported thousands of suspicious orders since 2009.

Based on her thorough review of all the evidence and her personal observation of the witnesses, Judge Randall stated that she had “no difficulty” finding that Masters should retain its DEA registration.

More than 15 months later, in September 2015, the newly-appointed Acting Administrator of the DEA, a career criminal prosecutor with no experience in the distribution of controlled substances, completely ignored Judge Randall’s findings. Based on his own deeply flawed interpretation of Masters’ customer due diligence files, and a blatant misinterpretation of the way in which Masters’ SOMS works, the Acting Administrator found that Masters’ continued registration as a controlled substance distributor was contrary to the public interest.

The DEA’s decision ignores substantial evidence in Masters’ favor. For example, Masters proved that controlled substances represented less than 3 percent of Masters’ total sales at the time of trial (and now are less than one percent of our total sales). The DEA also ignored the fact that Masters has reported thousands of suspicious orders for controlled substances, and reported to DEA the names of hundreds of pharmacies that had attempted to order controlled substances from Masters, but that did not meet Masters’ high standards.

Most importantly, there was not a single shred of evidence to prove that any pill Masters sold to any customer was ever illegally diverted.

Masters’ controlled substance customers are well-aware of the rigorous and exhaustive process Masters employs before selling controlled substances to any customer, and the regular, on-going due diligence conducted by Masters’ Compliance Department. We are proud of the high standards we set, and believe that our Compliance Department is the best in the business. Today, less than two percent of Masters’ revenue is generated from the sale of controlled substances. Most pharmaceutical distributors generate between 12 to 20 percent of their revenue from selling controlled substances.

The DEA’s decision in Masters’ case also announces an impossibly vague and burdensome standard for the pharmaceutical industry that will make it much more likely that legitimate pharmacies will not be able to purchase controlled substances. Under the DEA’s newly announced policy, a wholesaler can be held responsible if it ships almost any order without first fully and completely investigating the order, and “independently verifying” the reason why the pharmacy placed it. Many wholesalers will likely cease selling controlled substances altogether rather than risk running afoul of the DEA’s new rules.

Masters will not stand for this injustice. It has appealed the DEA’s decision and the federal court has agreed that the DEA’s order should not take effect while the appeal is pending. As a result, Masters will be able to continue servicing its controlled substance customers until the case is finally decided in court.

Regardless of the outcome of the case, Masters’ ability to sell non-controlled substances will not be affected. Masters will continue to provide its customers with the best customer service in the industry and great pricing, helping its independent retail pharmacy customers compete with the big chains. Masters’ fight with the DEA has not and will not stop the company’s explosive growth. It only makes us more confident that we are doing the very best for our customers, our company and the pharmaceutical industry.

If you want to learn more, please click on the links below or contact Masters’ General Counsel, Rick Lauer at 513-619-8038 or

  • • To read Judge Randall’s decision, click here (pdf)
  • • To read the Sworn Declaration of Masters’ Expert Witness, click here (pdf)
  • • To read the Sworn Declaration of Masters’ VP of Regulatory Compliance, click here (pdf)
  • • To read Masters’ Letter to DEA requesting stay, click here (pdf)
  • • To read the Court’s Order Granting Masters’ Request for a Stay, click here (pdf)