Chapter 23
Denver, Colorado, 2015
David Schiller was a rock star at the DEA. He had worked airport drug interdiction operations at LAX; helped crack a smuggling ring of FedEx drivers and managers that resulted in fifty-six arrests and the seizure of thirty thousand pounds of marijuana and $4 million in cash; and duped international drug lords from nations without extradition treaties with the United States to enter the country, where they were promptly arrested by the DEA. Working alongside the agency’s elite Special Operations Division, he had chased cocaine and heroin kingpins around the globe.
But none of those cases felt as important to him as the one he was building against McKesson. He could understand the motivations of international drug trafficking rings. He couldn’t understand how a U.S. company could be involved in what he saw as one of the largest drug rackets in America.
As the assistant special agent in charge of the DEA’s Denver field office, Schiller, a Southern California native, had spent two years investigating the drug distribution giant. He had assembled a national investigative team comprising nine DEA field divisions that worked alongside a dozen U.S. attorneys’ offices across eleven states. He wanted to revoke McKesson’s registrations to distribute narcotics at some of its twenty-eight warehouses across the country, several of them supplying regions that were being ravaged by the opioid epidemic. Schiller hoped to fine the company $1 billion. More than anything, he anticipated the first-ever criminal case against a drug distributor, maybe even a perp walk of an executive out of McKesson’s towering San Francisco headquarters, TV cameras rolling. That would send a message to the rest of the industry.
Schiller and his lead investigator, Helen Kaupang, believed that they could prove the company had failed to report suspicious orders involving hundreds of millions of highly addictive painkillers. Schiller and Kaupang came to think of McKesson as the Sinaloa Cartel of corporate America.
But as 2014 drew to a close, the case was going sideways. Schiller’s requests to prosecutors and DEA lawyers for large civil fines and criminal charges were languishing. He was hearing whispers from colleagues that the agency’s own lawyers were secretly negotiating a settlement with the company. He had even heard that lawyers for the DEA had quietly flown into Denver—Schiller’s own turf—to meet with representatives of McKesson, and hadn’t invited him.
DEA lawyers from headquarters were, in fact, in serious talks with a high-powered lawyer hired by McKesson, Geoffrey E. Hobart. He was a former Justice Department prosecutor who now specialized in defending drug companies at Covington & Burling, an influential D.C. law firm with $1 billion in annual revenue.
Schiller couldn’t get a straight answer about the status of his case. Why wasn’t he being included in the discussions over whether to settle in the first place? Instead of getting answers, he was being ghosted by his own agency.
McKesson first appeared on Schiller’s radar in 2012, when state and local law enforcement officers were investigating oxycodone sales at the Platte Valley Pharmacy in Brighton, Colorado, a suburb of Denver on the Platte River. Only thirty-eight thousand people lived in the town, but the pharmacist at Platte Valley, Jeffrey Clawson, was dispensing nearly two thousand pain pills every day. DEA agents soon learned that Clawson’s most loyal customers belonged to a notorious Denver-based drug ring. A grand jury indicted Clawson and the head of the ring, along with thirteen others, for illegally distributing oxycodone in Colorado and Oklahoma. The grand jurors made special mention of McKesson’s role.
“The Grand Jury learned of evidence demonstrating that Clawson’s Platte Valley Pharmacy engaged in the regular purchase of Oxycodone from McKesson that was either unusually large, unusually frequent, and/or which substantially deviated from the normal pattern typically observed for comparable pharmacies in the area in and around Brighton, Colorado,” the grand jurors wrote in their indictment. “From 2008–2011, the percentage increase for Oxycodone 30 mg orders supplied by McKesson to Platte Valley Pharmacy was approximately 1,469%.”
As he did with every investigation, Schiller began to build a timeline. It helped him keep the facts straight, to see the strengths and weaknesses of his case, and where he needed to train the DEA’s firepower. The timeline began in 2008, when McKesson paid its $13.25 million fine for failing to report the massive orders of hydrocodone it was shipping to internet pharmacies. The company signed an agreement with the DEA, promising to flag those kinds of orders in the future, using a sophisticated monitoring system. The company also promised to report all unusually large orders to the DEA and stop those shipments. The Platte Valley case suggested that McKesson had not only violated that agreement, he believed the company had flat-out ignored it.
McKesson supplied Platte Valley from its enormous warehouse in Aurora, Colorado, ten miles east of Denver. Schiller discovered that between signing the 2008 agreement and 2012, McKesson had shipped 1.6 million orders of prescription narcotics from the Aurora facility to drugstores in the region. It reported just 16 of those to the DEA as suspicious, none of them involving Platte Valley. After the DEA began its investigation, the company filed 2,447 suspicious order reports with the agency. The sudden and huge correction was damning. Even more damning: Schiller and his team tied nine overdose deaths to pharmacies that were receiving off-the-charts quantities of painkillers from the Aurora warehouse.
Schiller contacted other DEA field offices around the country. They were seeing the same pattern at a dozen different McKesson warehouses: in Livonia, Michigan; Washington Courthouse, Ohio; Landover, Maryland; and Lakeland, Florida, among others. Huge orders for pain pills were being shipped to drugstores, but McKesson reported few, if any, to the DEA as suspicious. Schiller also learned that two more pharmacies, in addition to Platte Valley, were supplying drug rings with oxycodone shipped from McKesson’s warehouses.
Schiller called Joe Rannazzisi to update him on the investigation. “Joe, it’s the best case we’ve ever had,” he told him.
The two had worked together a decade earlier, shortly after Joe arrived in Washington from Detroit to head the diversion control office and Schiller was running the undercover and special operations section at headquarters. From the start, the two hit it off. They were both intensely serious about the work, logging insanely long hours, often neglecting their families as they pursued cases. Schiller saw Joe as a straight shooter, a rare find in Washington. If someone didn’t like what Joe told them, he would say, “Well, if you don’t like the truth, then don’t ask me for the truth.”
In 2014, two years into the investigation, Schiller had asked the agency’s Chief Counsel’s Office to bring McKesson before a DEA administrative law judge. Those judges hear cases involving agency enforcement actions. If the company couldn’t explain why it was shipping so many doses of painkillers, the judge could suspend McKesson’s registrations to distribute drugs. Schiller wanted a judge to issue an Immediate Suspension Order against McKesson but he was told he needed more proof. He noted that he had already sent eight boxes of evidence to the Chief Counsel’s Office at headquarters. It wasn’t enough, they said.
A week before Christmas in 2014, Schiller was invited to Washington. McKesson wanted to show the DEA the steps it had taken to flag unusually large orders of drugs from its warehouses. It was a bid at contrition to avoid losing its registrations. The meeting was supposed to be held at DEA headquarters. The lawyers in the Chief Counsel’s Office, which provides legal advice to the entire agency, consented to moving the meeting to the D.C. offices of Covington & Burling. The decision was made while Schiller was flying from Denver to Washington. He couldn’t understand why the agency agreed to it. To him, Covington was enemy territory. Why cede ground to McKesson? It’s like going to a crook’s house to talk to the suspect before you arrest him, he thought.
As Schiller waited to pass through security at the firm, a few blocks from the Justice Department, he spotted an old colleague, Gary Boggs, Joe’s top lieutenant who had helped to bring the earlier cases against McKesson and Cardinal.
“Gary, what are you doing here?” Schiller asked.
Boggs said he had joined McKesson as its director of regulatory affairs.
“You’re kidding me,” Schiller said.
“They brought me in to change things,” Boggs said.
“They haven’t done anything right since 2008,” Schiller told him.
“They didn’t know what they were doing. I got a phone call, and they were looking for somebody to run their compliance program, and they told me they would let me actually run it and not be a front man. We’re holding everyone accountable now,” Boggs said.
“You know they’re not compliant. They’re never going to be,” Schiller said. “They’re there to make money.”
“Well, until they prove to me that they’re not willing to do the right thing from this point forward, I’ll run their compliance section,” Boggs said.
Schiller didn’t believe the McKesson executives, but he didn’t want to get into an argument in the black-striated marble lobby of the law firm. He boarded an elevator and the doors opened onto a vast conference room—one designed to project power and intimidate.
Joe had decided to shun the sit-down. He didn’t think a DEA assistant administrator should cross the threshold of a law firm that represented a company he saw as a defendant, a repeat offender at that. Instead, he sent one of his top executives, John Partridge, to monitor the meeting, with instructions to leave if he didn’t like what he was hearing.
Partridge, an unflappable twenty-five-year veteran of the agency, took a seat near the back of the conference room. He was incensed by how the case was being handled. He, too, had heard about the meetings between the Chief Counsel’s Office and McKesson, and how the agents, investigators, and supervisors were frozen out. As McKesson executives enumerated the steps they said they were taking to prevent the mistakes of the past, with a slick PowerPoint presentation and colorful graphics, Partridge thought to himself that none of it mattered. What mattered was that McKesson had violated the terms of its 2008 agreement, the company had flooded the nation with pain pills, thousands of people had died, and the company should pay a high price. He also believed that some of McKesson’s executives, including its president, John Hammergren, should be prosecuted.
As Partridge listened to the McKesson executives and their attorneys drone on, he asked himself, Why am I here? Whatever they say doesn’t change what happened. They were given a second chance and they broke the law. McKesson, he thought, should be telling this to a judge, not a room full of DEA lawyers. About an hour into the daylong meeting, Partridge recalled what Joe had told him before he headed over to Covington. He was busy that day. He took Joe’s advice. He stood up and walked out.
In Detroit, Jim Geldhof, also working the McKesson case, had a sickening feeling as he sat in his sixth-floor office overlooking the federal courthouse. He had been with the DEA for nearly forty-three years. He was close to retirement, reflecting on his legacy and calculating all the time he had spent away from home. He looked around his office, the photos of his family displayed on a wooden credenza, plaques and awards hanging on the walls. In the corner was a small wooden table where he and his colleagues had spent countless hours mapping out strategies to pursue hundreds of cases across the years. He thought the case against McKesson would be a fitting capstone.
Two of McKesson’s largest warehouses were located in Geldhof’s region, one in Livonia, Michigan, the other in Washington Courthouse, Ohio. Both of them, he believed, had helped to fuel the opioid epidemic in Ohio, West Virginia, and Kentucky. Yet he was left to wonder why the leadership of the DEA and its Chief Counsel’s Office were retreating in the face of the agency’s biggest fight against the drug industry. Why were they refusing to back up the cases his office and DEA field divisions across the country were bringing to headquarters, he wondered? Was someone at Justice putting pressure on the DEA?
Geldhof traced the start of the problem to 2013, after a new lawyer was named to the Chief Counsel’s Office. Clifford Lee Reeves II, the career Justice Department attorney who argued the Cardinal case, became the associate chief counsel of the DEA the previous year. DEA program managers, agents, and investigators watched as their once-promising cases hit a wall of resistance at Reeves’s office. They were having difficulty winning approval for search warrants, for court orders to force companies in front of judges, and for requests to immediately suspend the DEA registrations of drug companies that were failing to follow the law. Every request Geldhof made turned into a confrontation. Before Reeves’s arrival, DEA investigators had to show that they had amassed “a preponderance of evidence” before moving forward with their civil cases. After Reeves’s arrival, DEA investigators and lawyers said they were told that the standard was being changed to “beyond a reasonable doubt,” a heavy burden reserved for criminal cases. Lawyers working under Reeves thought he was afraid of losing. One of those lawyers, Jonathan P. Novak, couldn’t convince Reeves to bring cases against the drug companies. He thought the cases were ready to file and he couldn’t understand why he kept getting shut down. Reeves became overly cautious and too deferential to the large teams of attorneys from law firms representing the companies under DEA investigation. The days of bold moves against the drug companies were coming to a close. A new era of cooperation between the DEA and the opioid industry had begun.
“What are you doing?” Geldhof asked Reeves during one heated exchange. “All we have had is wins in every case. I don’t get it.”
In Washington, the DEA’s chief administrative law judge, John J. Mulrooney II, who oversaw the agency’s enforcement actions, also began to question the plummeting cases against the drug industry. Mulrooney wrote in a June 2013 report that there was “a significant drop” in the number of “orders to show cause.” Four months later, he noted “a free fall in the numbers of charging documents.” For the first time since records had been kept, no charging documents had been filed for an entire month. The judge noted that the number of civil case filings against distributors, manufacturers, pharmacies, and doctors reached 131 in 2011, before dropping to 40 within three years. The number of Immediate Suspension Orders plummeted from 65 to 9 during that same time.
“There can be little doubt that the level of administrative Diversion enforcement remains stunningly low for a national program,” Mulrooney wrote in his report.
The flow of cases had turned to a trickle.
“Assuming also that opioid-related deaths remain at over 20,000 per year,” the judge wrote, “this would mean that the Agency is on course to institute one administrative enforcement action for every 625 fatalities.”
Toward the end of 2014, Mulrooney reported that the caseload was so low, his judges had little left to do at the DEA. In response, Mulrooney farmed them out to hear cases at other federal agencies, like the Bureau of Prisons and the Treasury Department.
By 2015, some of the DEA’s biggest cases against the drug industry were withering. DEA lawyers and federal prosecutors kept negotiating with the drug companies, and they stopped talking to the field agents and investigators and their supervisors like Geldhof and Joe. It was as if they were working for the other side, not the DEA, Geldhof thought.
On the final day of March 2015, Schiller sent an urgent message to one of the few people he trusted at DEA headquarters, Mimi Paredes. Schiller was losing control of the McKesson case. He and an assistant U.S. attorney, M. J. Menendez, had prepared a memo outlining a possible criminal case and presented it to the U.S. attorney in Denver, John Walsh. He rejected it. Walsh thought it would be too difficult to prove that McKesson intended to illegally distribute oxycodone or knew its narcotics were winding up in the hands of criminal pharmacies and drug gangs. Walsh and the other U.S. attorneys involved in the case decided to proceed against McKesson with civil penalties, just as the DEA had done in 2008. The fate of the case now rested with the Justice Department and the DEA’s Chief Counsel’s Office—and they wanted to settle.
Schiller was apoplectic. “If Chief Counsel and the 12 U.S. Attorneys Offices do not want to go [to] court, we need to at least hold McKesson and the industry as a whole accountable,” he wrote to Paredes on March 31, 2015. “Past agreements with Cardinal and others continue to let the industry operate with reckless abandon, and they continue to laugh at DEA as they continue to knowingly violate their responsibilities as a DEA registrant. They only care about the mighty dollar.”
“David, I totally agree with you,” Paredes responded. “I’m totally against settling, but how do we hold their feet to the fire if counsel refuses to litigate. Our attorneys have us over a barrel with their refusal to go to court.”
It got worse. Schiller and Paredes thought the DEA and the Justice Department were being too deferential to McKesson during the settlement talks that spring. At every step, the government lawyers ceded to McKesson’s demands. At first, the government lawyers proposed that McKesson lose its DEA registrations to distribute controlled substances for four years at its warehouses in Ohio, Michigan, and Colorado. They also wanted McKesson to lose its registrations for two years at its warehouses in Massachusetts and Florida.
But Hobart, McKesson’s attorney, called those requests deal-breakers. He said McKesson would consent to having its DEA registrations temporarily “suspended.” If the company lost its registrations—as distinct from having them suspended for a short period—it would have to reapply to the DEA and state regulatory boards, a costly and time-consuming process.
Hobart also demanded a special reprieve be included in the settlement that would permit McKesson to keep sending controlled substances to the Veterans Administration, federal prisons, and the Indian Health Service from its warehouses in Michigan and Ohio. McKesson had lucrative contracts with the federal government, including a $31 billion deal to supply the nation’s VA centers. Losing those would be a huge blow to the company’s bottom line and its stock price.
Paredes was unsympathetic. “Their bad acts continued and escalated to a level of egregiousness not seen before,” she wrote in a memo to the government lawyers negotiating the settlement. “They were neither rehabilitated nor deterred by the 2008 [agreement].”
McKesson had already received the benefit of a similar reprieve in its 2008 settlement, Paredes pointed out. Why should the company get a second chance? The former Navy lawyer also chafed at McKesson still being able to supply America’s veterans. It was an insult. The company was not good enough to serve the public, but was “‘good enough’ to serve veterans?” she asked in her memo.
McKesson responded that disrupting the flow of drugs would hurt veterans. Paredes dismissed that argument, too. Companies like Cardinal and AmerisourceBergen would be more than happy to take over McKesson’s multibillion-dollar contracts.
“Find other distributors,” Paredes wrote.
Not only was the McKesson case going up in flames, but the biggest case the DEA had ever brought against a drug maker—Mallinckrodt, the largest manufacturer of generic oxycodone in America—was about to blow up.