United States: How You Source Drugs And Criminal Liability

Last Updated: September 16 2014
Article by Michael A. Walsh

In June 2014, the office manager at a hematology and oncology center pleaded[MJH1]  guilty to purchasing and selling unapproved and improperly labeled chemotherapy drugs and the center paid $2M to reimburse Centers for Medicare and Medicaid Services (CMS) for submitting "false claims."  The "crime" was purchasing the drugs from a Canadian supplier whose drug products were sourced from the European Union, Turkey and India.  Similarly, a Texas physician fell prey to purchasing from the Canadian supplier and pleaded guilty to the introduction and delivery into interstate commerce of a misbranded drug in violation of federal and state law, resulting in a $1M penalty.

Currently, 40% of finished drugs and 80% of active pharmaceutical ingredients in the US are manufactured overseas.  While prices for drugs approved for the US market may exceed those in other countries, how the foreign manufactured drugs enter commerce in the US may be the difference between a lower price and being charged with criminal conduct. For example, Gallant Pharma transported drugs approved in the EU by falsely representing them to customs officers as personal items or other products.  Once the drugs were in the US, they were marketed and distributed as though they were FDA approved products.

To combat the influx of "illegal" drugs, and in recognition of the vulnerability of drug supply chain to intentional contamination in the aftermath of 9/11, Congress enacted the Food and Drug Administration Safety and Innovation Act (FDASIA) and in November 2013, the Drug Security Claim Security Act (DSCSA).  This legislation rewrites the law on the supply and distribution of drug products in the US.  The goal of the new laws is to have what is termed an "interoperable" information system to trace every aspect of every drug package by 2023.

Key features of the new laws include:

  1. Product Verification and Identification: Requiring manufacturers to include unique product and company identifiers, such as a National Drug Code (NDC) or bar code.
  2. Product tracing: Requiring supplier to have electronic documentation detailing the drug supply chain with information and who handled it each time it is sold in the U.S. market.
  3. Detection and Response: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) are required to quarantine and promptly investigate a drug that has been identified as suspect (i.e. potentially counterfeit, unapproved, or dangerous).
  4. Notification: Manufacturers, wholesaler drug distributors, repackagers, and many dispensers (primarily pharmacies) are required to establish systems and processes to notify FDA and others in the distribution chain if an illegitimate drug is identified.
  5. Wholesaler Licensing: Wholesale drug distributors to report their licensing status and contact information to FDA in a public database.
  6. Third-party logistics provider licensing: Third-party logistic providers, those who provide storage and logistical operations related to drug distribution, to obtain a state or federal license.

Supplier Verification – Confirm that your supplier is registered or licensed. Manufacturers must be registered with FDA, distributors and third-party logistic providers are (or soon will be) required to be licensed by the state.  If "Red-Flags" exist, inquire about licensing status and contact the state department of health or FDA to confirm registration or licensing.

Beginning January 2015, manufacturer and suppliers are required to maintain "Transaction Information", "Transaction History" and a "Transaction Statement" for inspection.  While this information will greatly increase the ability to detect unapproved drugs, it also will require those purchasing drugs to be on the lookout for red-flags.


  • Is the price of the medicine significantly lower or consistently lower than all competitors. (i.e. "too good to be true" Deep discounts may be reflect the product is stolen, counterfeit, substandard, or unapproved).
  • No on-line presence.
  • Unsolicited offers via email blast or fax blast marketing.
  • Prior history of problems with supplier.
  • Reluctance to provide or untimely providing transaction history or transaction statement.
  • Foreign address.
  • Requests for payments off-shore.
  • Unusual terms or conditions.
  • Company name changes.
  • Invoice information is inconsistent with ordering information or does not match.

Product Verification – Confirm you are getting what you ordered. Inspect the product and packaging for signs that the product is not FDA-approved, or is otherwise Adulterated or Misbranded.


  • The medicine has a different name than what was ordered.
  • If the medicine has an unfamiliar name, confirm it is FDA-approved by checking the Orange Book or Drugs@FDA.
  • The packaging or label looks different from the product you usually receive.
  • The packaging reflects improper handling or temperature control.
  • Portions, or all, of the labeling are not in English.
  • The dosing recommendations are unfamiliar.
  • The dosage form or route of administration is different (e.g., ampule instead of pre-filled syringe).
  • Missing unique manufacturer identifiers, such as a National Drug Code  (NDC) identifying the manufacturer or bar code.The product does not display a National Drug Code (NDC) number.
  • Product previously or currently subject of a drug shortage.
  • Product subject of an Illegitimate Product notification or other drug quality alert or announcement.
  • Product subject of an FDA counterfeit or cargo theft alert.


The new laws grant significant new regulatory oversight and provide greater transparency as drugs move through the supply chain.  These changes create significant impediments to the introduction of unapproved drugs in the US.  The new rules provide new tools but vigilance on the part of each participant in the drug supply chain is essential to ensure only approved FDA medications are used in the US.   Nonetheless, the unscrupulous and criminal minded will continue to distribute unapproved drugs.  For physicians, pharmacies and anyone who dispenses or administers prescription drugs, not knowing the new rules or not following them will only increase the potential for significant civil and criminal penalties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Michael A. Walsh
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