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University of Michigan's health system will pay $4.3 million to settle charges it illegally dispensed narcotics at 15 locations, resulting in at least two overdoses and one death in 2013, the U.S. Department of Justice said Thursday.

A national drug diversion compliance consultant called the lapse inexcusable and said it exposed the UM health system to tens of millions to hundreds of millions of dollars in federal penalties. But the filing of federal criminal charges remains possible.

As part of the nation's largest-ever settlement of its kind involving allegations of drug diversion at a hospital, Michigan Medicine admitted it knowingly dispensed drugs from 15 locations that lacked necessary registration with the federal Drug Enforcement Agency from May 2012 through June 2014. 

The unregistered ambulatory care clinics failed to follow the DEA's strict requirements for inventory control, record keeping and security — leading to theft and diversion of tens of thousands of pills.

The university admitted that between May 2011 and January 2012 alone, hospital employees stole 16,000 hydrocodone pills. Investigators say many more than the 16,000 were pilfered.

"At Michigan Medicine, we take these issues very seriously and are always in the business of improving what we do.  We were not where we needed to be as a regulatory matter and, equally important, as measured against our own high standards," UM's health system said in a Thursday statement.

"We’ve made multiple, substantial improvements to our pharmacy and controlled substance processes over the last several years and expect to continue those efforts in the future."

Violations of the Controlled Substance Act could have left the university liable to penalties much larger than the $4.3 million settlement, said Bruce Wolosin, chief operating officer of the Titan Group, a DEA regulatory compliance consulting firm based in Morris County, New Jersey. 

The federal government alleges that, "at a minimum," the UM health system "committed thousands of violations" of the Controlled Substance Act.

The settlement noted that, during the time period outlined in the charges, "a registrant who violated the (Controlled Substance Act) by distributing or dispensing a controlled substance not authorized by its registration is subject to a civil monetary penalty of up to $25,000 per violation." 

The institution is also subject to a $10,000 fine for each failure to "make, keep, or furnish any requisite record, report, notification, declaration, order or order form, statement, invoice, or information."

"Every incident is subject to a penalty," Wolosin said, "so if 30,000 pills are missing that could be 30,000 incidents." 

Subjecting the 16,000 incidents admitted to by the UM health system to federal fines could have resulted potentially in fines ranging from $160 million to $400 million. 

From April 2012 through April 2014, controlled substances were at times diverted from Omnicells — the medication inventory management and dispensing systems — located throughout health system facilities.

"Other thefts involved registered nurses who diverted controlled substances from UMHS for months, and in some instances, years," the university admitted as part of the agreement. "Some of these nurses diverted vials of fentanyl, then refilled the vials with saline before returning them to the Omnicell for administration to patients for whom fentanyl had been prescribed. Some cases of diversion went on for a significant period of time."

Under the settlement agreement, the U.S. Department of Justice still could bring criminal charges related to the allegations. Gina Balaya, spokeswoman for the U.S. Attorney's Office for the Eastern District of Michigan, did not respond when asked if criminal charges are expected. 

The DEA launched its investigation in December 2013 after a nurse was found dead at University of Michigan Hospital in Ann Arbor from an overdose of fentanyl and midazolam that was taken from a patient.  That same month, an anesthesia resident was found in cardiac arrest at the hospital after overdosing on diverted fentanyl and morphine, but was revived. 

"This hospital has absolutely no excuse whatsoever," Wolosin said.

"They are big enough to afford a compliance organization that understands the requirements, policies and procedures as promulgated by the Controlled Substance Act." 

Controlled substances were sent to the 15 unregistered sites from a University of Michigan health system location that was properly registered with the DEA — but not authorized to distribute drugs to other facilities. Investigators said the "B2 Vault" dispensed in excess of 30,000 units of controlled substances in Schedules Il through V to the unlicensed facilities.

"These transfers did not include the required DEA Form-222, and the invoices did not contain all required elements. Some transfers to UMHS researchers also lacked appropriate documentation," according to DEA findings stated in the settlement agreement. 

The $4.3 million will be paid in three installments over three years.  The agreement settles all of the government's financial claims, but the government reserved the right to file criminal charges in the future. 

In 2015, in what was then the largest settlement of its kind involving allegations of drug diversion at a hospital, Massachusetts General agreed to pay the federal government $2.3 million to resolve allegations that lax controls enabled employees to divert controlled substances for personal use. 

As in the Massachusetts General case, the University of Michigan health system agreed to implement a comprehensive corrective action plan to prevent, identify and address future diversions. 

kbouffard@detroitnews.com

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