Wedgewood Village Pharmacy v. D.E.A., 06-1156.

CourtUnited States Courts of Appeals. United States Court of Appeals (District of Columbia)
Citation509 F.3d 541
Docket NumberNo. 06-1156.,06-1156.
Decision Date11 December 2007

Derek L. Shaffer argued the cause for the petitioner. Michael W. Kirk and Charles J. Cooper were on brief.

Lena D. Watkins, Attorney, United States Department of Justice, argued the cause for the respondent. Teresa A. Wallbaum and Stephen A. Sola, Attorneys, United States Department of Justice, were on brief.

Before: HENDERSON, RANDOLPH and BROWN, Circuit Judges.

Opinion for the court filed by Circuit Judge HENDERSON.


Wedgewood Village Pharmacy (Wedgewood) challenges the decision of the United States Drug Enforcement Administration (DEA) to revoke its registration as a "practitioner" within the meaning of 21 U.S.C. § 823(f). Before the revocation of its registration, Wedgewood's business focused primarily on supplying equine veterinarians with specially formulated medications. Following an investigation of Wedgewood's Sewell, New Jersey facility, DEA determined that Wedgewood was operating outside the scope of its registration. Specifically, DEA objected to Wedgewood's practice of preparing large amounts of "compounded" controlled substances and then delivering the medications to veterinarians and physicians instead of directly to their patients. DEA viewed these practices as "manufacturing" and "distributing" controlled substances as defined by the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. No. 91-513, 84 Stat. 1236 (codified as amended at 21 U.S.C. § 801 et seq.) (CSA or Act). Under Wedgewood's DEA registration as a "practitioner," however, it is authorized only to "compound" and "dispense" controlled substances. For the reasons that follow, we vacate the revocation of Wedgewood's registration and remand to the agency for further proceedings.

A. Statutory/Regulatory Background

The Congress enacted the CSA in 1970 to reduce drug abuse by preventing the diversion of controlled substances. See Gonzales v. Oregon, 546 U.S. 243, 250, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006) (discussing legislative history of CSA). A central feature of the CSA is its "closed system" of distribution in which all persons in the "legitimate distribution chain" of controlled substances must register with DEA.1 H.R.Rep. No. 91-1444 (1970), as reprinted in 1970 U.S.C.C.A.N. 4566, 4572. In its closed distribution system, the CSA created three categories of registrants: "manufacturer," "distributor" and "practitioner"—each with distinct requirements for registration. See 21 U.S.C. § 823(a) (criteria for "manufacturer" registration), 823(b) (criteria for "distributor" registration), 823(f) (criteria for "practitioner" registration). A "manufacturer" is authorized to engage in "[t]he production, preparation, propagation, compounding, or processing of a drug." Id. § 802(15) (emphasis added). A "distributor" is authorized to "deliver (other than by administering or dispensing) a controlled substance." Id. § 802(11) (emphasis added). The CSA describes a "practitioner" as a "physician, dentist, veterinarian, . . . [or] pharmacy" registered to "distribute, dispense, . . . [or] administer . . . a controlled substance in the course of professional practice." Id. § 802(21) (emphasis added). The CSA explains that "dispens[ing]," as used in the definition of "practitioner," is the "deliver[y of] a controlled substance to an ultimate user . . ., including . . . compounding necessary to prepare the substance for such delivery." Id. § 802(10) (emphases added). "Delivery" includes "the actual, constructive, or attempted transfer of a controlled substance." Id. § 802(8) (emphasis added). In addition, the CSA specifies that "the preparation [or] compounding . . . of a drug . . . by a practitioner as an incident to his administration or dispensing of [the] drug" does not constitute "manufacturing."2 Id. § 802(15) (emphases added). The CSA does not define "compounding."

The scope of the terms "manufacture," "compound," "distribute" and "dispense" as used in the CSA remains unsettled. Beginning in the 1990s, the United States Food and Drug Administration (FDA), along with other government agencies, grew concerned that some pharmacies were using their compounding authorization under 21 U.S.C. § 801(10) and (21) to, in effect, manufacture controlled substances without FDA approval. In response to their concern, the Congress enacted the Food and Drug Administration Modernization Act of 1997 (FDAMA), Pub.L. No. 105-115, 111 Stat. 2296. According to the legislative history of the FDAMA, its "intent [was] to ensure continued availability of compounded drug products as a component of individualized therapy, while limiting the scope of compounding so as to prevent manufacturing under the guise of compounding." H.R. Conf. Rep. No. 105-399, at 94, as reprinted in 1997 U.S.C.C.A.N. 2880, 2884.

The FDAMA contained a definition of "compounding" that required a prescription therefor to be unsolicited by a retail pharmacy and prohibited the pharmacy from advertising the compounding of a particular drug. Pub.L. No. 105-115 § 127 (codified at 21 U.S.C. § 353a(a), (c)). Several pharmacies with large compounding practices, including Wedgewood, challenged these provisions as violative of the First Amendment. See Thompson v. W States Med. Ctr., 535 U.S. 357, 360, 122 S.Ct. 1497, 152 L.Ed.2d 563 (2002). The Supreme Court agreed, holding that the FDAMA improperly restricted solicitation and advertising, both legitimate forms of commercial speech. Id. Accordingly, its holding invalidating the language left DEA—and pharmacies—without a statutory definition of compounding.3

B. Agency Proceedings Against Wedgewood

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...

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