Due to heightened reporting requirements and recent large settlements against wholesalers for failure to report suspicious orders, many pharmacies experience issues with their supply of controlled substances (“CS”). I have represented many pharmacies in petitioning wholesalers to increase the cap on CS supply or not to cut such a supply. Often, such pleas fall on deaf ears.
This may change with a recent decision of a district court which granted an injunction requiring Cardinal to resume supplying controlled substances to MG Pharmacy.
MG Pharmacy – a family-owned Arizona pharmacy – has been having issues with Cardinal since 2013, when Cardinal placed a cap on how much oxycodone the pharmacy was able to order per month (up to 3,500 dosage units).
In 2021, however, Cardinal informed the pharmacy that it would no longer be supplying it with any CS (in addition to some non-controlled substances). Cardinal explained that the pharmacy had filled too many prescriptions for oxycodone from a single prescriber (a nurse practitioner from a nearby pain clinic). In other words, Cardinal had determined that the pharmacy posed an unreasonable risk of diversion and its continuing supply may trigger additional problems for Cardinal (to remind, back in 2017, the DEA fined Cardinal $44 million for failure to report suspicious orders).
In response, the pharmacy filed a motion for temporary restraining order and preliminary injunction alleging breach of contract and tortious interference with business relationships. The court denied the TRO but ruled for pharmacy on the injunction.
During litigation, Cardinal argued that the agreement with the pharmacy allowed Cardinal to terminate the supply at its sole discretion. The court, however, discussed in its opinion the doctrine of good faith and held that the balance of hardship was on the side of the pharmacy. Cardinal had no basis to believe that pharmacy engaged or assisted in diversion (there were no government investigations and Cardinal had no evidentiary proof of diversion). The pharmacy’s orders of CS had been consistent for years and were within the previously set cap.
In addition, the pharmacy was able to show reputational and monetary damages (patients prefer a one stop for all pharmaceutical needs).
While this is the first pharmacy victory (at least that I know of) in obtaining an injunction against its wholesaler for cutting the supply of CS, it could be an important decision for pharmacies arguing unconscionability of wholesaler contracts. The case was decided in Arizona and it is possible that a different court may come to a different conclusion. Nonetheless, this is an interesting and important case in pharmacy litigation.