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Justice News

Department of Justice
U.S. Attorney’s Office
Central District of California

Thursday, January 19, 2017

Costco Wholesale to Pay $11.75 Million to Settle Allegations of Lax Pharmacy Controls

Costco Pharmacies Filled Prescriptions that Were Improper or Incomplete

          LOS ANGELES – Costco Wholesale will pay $11.75 million to settle allegations that its pharmacies violated the Controlled Substances Act when they improperly filled prescriptions for controlled substances.

          The settlement announced today resolves allegations that Costco pharmacies filled prescriptions that were incomplete, lacked valid DEA numbers or were for substances beyond various doctors’ scope of practice. Additionally, the settlement resolves allegations that Costco failed to keep and maintain accurate records for controlled substances at its pharmacies and centralized fill locations.

          The settlement was announced today by United States Attorney Eileen M. Decker, along with U.S. Attorneys Annette L. Hayes for the Western District of Washington, Michael C. Ormsby for the Eastern District of Washington, Barbara L. McQuade for the Eastern District of Michigan, and Phillip A. Talbert for the Eastern District of California.

          “These are not just administrative or paperwork violations – Costco’s failure to have proper controls in place in its pharmacies likely played a role in prescription drugs reaching the black market,” said United States Attorney Eileen M. Decker. “Costco pharmacies in Southern California filled numerous prescriptions for drugs that should not have been sold to consumers because of its flawed system for validating DEA registration numbers.”

          Under the settlement that was finalized yesterday, Costco acknowledged that, from the beginning of 2012 through the end of 2015, certain Costco Pharmacies dispensed controlled substances inconsistent with their compliance obligations under the Controlled Substances Act (CSA) and its implementing regulations. The violations included filling prescriptions from practitioners who did not have a valid DEA number, incorrectly recording the practitioner’s DEA number, filling prescriptions outside the scope of a practitioner’s DEA registration, filling prescriptions that did not contain all the required information, failing to maintain accurate dispensing records, and failing to maintain records for their central fill locations in Sacramento and Everett, Washington.

          As part of an investigation in 2012 into the diversion of controlled substances by local physicians, the DEA’s Los Angeles Field Division discovered that Los Angeles-area Costco pharmacies had filled numerous prescriptions issued by individual practitioners who lacked a valid DEA registration number. The resulting DEA investigation into the practices, policies and procedures for validating DEA registration numbers at local Costco pharmacies revealed that, between January 2012 and August 2013, area Costco pharmacies filled dozens of prescriptions issued by individual practitioners who lacked a valid DEA registration number, and filled nearly 200 prescriptions issued by individual practitioners with a valid DEA registration number but used an invalid DEA registration number when recording and reporting the prescription. Costco filled these prescriptions because its system for validating DEA registration numbers was deficient and flawed.

          “Last year, over 50,000 Americans died as a result of drug overdoses, many of which were related to the misuse of prescription drugs. This settlement demonstrates the accountability and responsibility that go along with handling controlled prescription drugs,” said DEA Assistant Administrator Louis Milione. “DEA works every day to reinforce good corporate practices through outreach and education efforts and, when appropriate, with administrative and criminal action.”

          “Pharmacies across this country are on the leading edge of the battle against our prescription drug abuse crisis,” said United States Attorney Annette L. Hayes of the Western District of Washington. “A company such as Costco that distributes a significant volume of controlled substances has a responsibility to ensure it complies with regulations that help prevent opioids and other dangerous drugs from being misused or otherwise added to the illegal marketplace. I commend the Drug Enforcement Administration investigators for uncovering the violations at issue in this case, and working with Costco to ensure that systems are put in place to prevent controlled substances from ending up in the wrong hands.”

          To address issues uncovered in this investigation, Costco made improvements in its pharmacies. The company purchased a new pharmacy management system at a total budgeted five year cost of approximately $127 million. Additionally, Costco implemented a three tier audit program of its pharmacy locations: Tier 1 done by pharmacy managers and regional pharmacy supervisors; Tier 2 completed by an Internal Audit group consisting of three auditors and an audit supervisor; and Tier 3 an External Audit of 40 annual audits.

          Under the terms of the settlement, over the next three years, DEA is allowed to conduct unannounced and unrestricted inspections of all DEA registered Costco Pharmacy locations without Administrative Inspection Warrants. The Drug Enforcement Administration monitors pharmacy prescribing practices to ensure compliance with federal law. Pharmacies found in violation face escalating penalties up to the revocation of their DEA Registration number – the authorization that allows them to write prescriptions for controlled substances.

          Michael C. Ormsby, United States Attorney for the Eastern District of Washington, said “Opioid misuse has reached epidemic levels in the United States. This important matter is yet another example of the tenacious dedication of Drug Enforcement Administration investigators in uncovering and addressing corporate regulatory noncompliance. The DEA must be commended for its superb efforts in combating the opioid problem at so many different levels, including regulatory compliance.”

          “In light of the prescription pill and opioid overdose epidemic we are seeing across the country, compliance with regulations governing pharmacies is more important than ever,” said United States Attorney Barbara L. McQuade of the Eastern District of Michigan. “We applaud Costco for working with DEA and taking steps to tighten up its compliance to ensure that prescription pills do not end up on the street market.”

          “Pharmacies are the gatekeepers responsible for ensuring the lawful use of powerful drugs that have a legitimate medical purpose but are easily abused. The CSA provides the statutory oversight to ensure that pharmacies keep meticulous records,” said United States Attorney Phillip A. Talbert of the Eastern District of California. “The successful resolution of this matter demonstrates the Department of Justice’s commitment to enforcing the CSA.”

          This case was investigated by DEA Diversion Groups in Seattle, Los Angeles, Sacramento and Detroit. While this settlement is national in scope, the settlement was negotiated by the United States Attorney’s Offices in the Western and Eastern Districts of Washington, the Central and Eastern Districts of California, and the Eastern District of Michigan.

Press Release Number: 
Updated January 19, 2017