California’s Novel Approach to Controlled Substance Inventory and Loss Reporting

The California Board of Pharmacy (the “Board”) implemented a novel approach to address employee theft as one aspect of the opioid epidemic in 2018 by requiring pharmacies and clinics to reconcile their quarterly schedule II inventories.  The approach was novel because to our knowledge, no other regulator, not the Drug Enforcement Administration (“DEA”), not other states, require pharmacies and clinics to physically inventory controlled substances, then reconcile those inventories with receipts and dispositions.  DEA registrants, for example, are only required to take a physical inventory of all controlled substances on-hand at least once every two years and there is no reconciliation requirement.  21 C.F.R. § 1304.11(c).  Most states mirror the federal biennial inventory requirement.

Inventory Activities and Reconciliation Reports

In 2018 the Board reasoned “[by] requiring at least a quarterly inventory of all Schedule II controlled substances, pharmacists, pharmacies, and clinics will be better equipped to spot and stop employee drug diversion from the pharmacy earlier and prevent excessive drug losses from occurring.”  Initial Statement of Reasons, Reconciliation and Inventory Report of Controlled Substances, California Board of Pharmacy, 1.  We blogged at the time on the new requirement here.

Four years later in 2022 the Board significantly expanded the inventory activities and inventory reconciliation requirements for additional “federal controlled substances.”  Cal. Code regs. tit. 16, § 1715.65.  “Inventory activities” include inventory and all other functions sufficient to identify controlled substance losses, and policies and procedures must identify such functions outside of the required inventory reconciliation process.  Id. § 1715.65(a)(3)(B).  California pharmacies and clinics must now create inventory reconciliation reports for:

a. Federal schedule II controlled substances, at least once every three months;

b. These non-schedule II substances in the following strengths per tablet, capsule, other unit, or specified volume, at least once every 12 months:

• • • Alprazolam (1 mg./unit);
    • Alprazolam (2 mgs./unit);
    • Tramadol (50 mgs./unit); and
    • Promethazine/Codeine (6.25 mgs. Promethazine and 10 mgs Codeine per 5 mgs. of product)

c.  All other controlled substances:

• • • No later than three months after discovery of a “reportable loss” (discussed later);
    • Such reports must cover the period from the last physical count of the drug before the loss through the discovery date; or
    • At least once every two years. Id. § 1715.65(a).

Inpatient hospital pharmacies are required to prepare inventory reconciliation reports of federal schedule II substances, and the specific alprazolam, tramadol, and promethazine with codeine formulations quarterly.  The reports must “include controlled substances stored within the pharmacy, within each pharmacy satellite location, and within each drug storage area in the hospital under the pharmacy’s control.”  Id. § 1715.65(g).

Pharmacy and clinic policies and procedures must include inventory activities and inventory reconciliation reports.  The Pharmacist-in-Charge (“PIC”) or consulting pharmacist must review all inventory activities and inventory reconciliation reports.  Id. § 1715.65(b).  Inventory reconciliation reports must include:

1. An actual physical count rather than an estimate of federal controlled substances in inventory;

• • • Inpatient hospitals and licensed correctional pharmacies using automated delivery systems may account for their inventory by other than a physical count; and
    • An individual who takes the inventory must sign and date the inventory or the report that contains it;

2. A review of all acquisitions and dispositions of every “federal controlled substance” covered by the report since the last inventory reconciliation report covering the controlled substance;
3. A comparison between the physical counts and acquisitions/dispositions to determine variances between what must be accounted for with what is accounted for;
4. Identification of all records used to compile the report;

• • • The records must be maintained and readily retrievable in the pharmacy or clinic for three years;

5. Identification of each individual involved with preparing the report;
6. Possible causes of overages; and
7. Date and signature of the PIC or professional director if a clinic. Id. § 1715.65(c), (e)(1).

So, California pharmacies and clinics must take a physical inventory for all controlled substances depending upon their schedules unless there is a reportable loss.  Then, in creating inventory reconciliation reports, they must conduct what amounts to accountability audits to determine whether they can account for all controlled substances handled since the prior inventory.  Depending on controlled substance quantities and the underlying records, whether maintained in hardcopies or electronically, it may be more advantageous and less burdensome for pharmacies and clinics to take inventories and create inventory reconciliation reports more frequently than annually or biennially.  More frequent reconciliations will detect potential variances earlier and will not require pharmacies or clinics to reconstruct activities for so long a period.

Reporting Losses

Pharmacies and clinics must report identified losses and known causes to the Board within 30 days of discovery unless the loss was caused by theft, diversion or self-use, which require reporting within 14 days of discovery.  Id. § 1715.65(d).

An “owner” of a pharmacy or clinic must report each controlled substance loss to the Board identifying every substance, quantity and strength.  Id. § 1715.6(a) and (b).  The Board has identified reportable controlled substance losses not attributed to theft, diversion or self-use.  Losses not attributable to these specific causes must be reported if they are equal to or exceed:

1. 99 tablets, capsules or other oral medication dosage units;
2. 10 units of single-dose injectable medications, lozenges, film such as oral, buccal and sublingual, suppositories, or patches; or
3. 2 or more multi-dose vials, infusion bags or any other unit. Id. § 1715.6(a)(1).

Any other loss of a controlled substance regardless of quantity attributed to employee theft must be reported to the employee’s licensing board.  Id. § 1715.6(a)(2).  Any other loss the PIC determines is significant must also be reported.  Id. § 1715.6(a)(3).  The Board has clarified reportable quantities of controlled substance formulations regardless of schedule.  In contrast, DEA requires registrants to report all thefts and any “significant losses” regardless of schedule or quantity.  21 C.F.R. § 1301.76(b).