Devious Diversions: Medical Providers Illegally Take Control over Controlled Substances

“You have the right to remain silent. You have the right to an attorney…” are words commonly heard during drug busts on the streets. The unfortunate reality is that with growing frequency these scenarios are playing out in the healthcare arena when unscrupulous medical providers divert narcotics from hospital inventories, so they can resell them for profit or personally abuse them.

Drug diversion fraud potentially involves three distinct parties: the fraudster, the hospital, and the patient. The theft may occur from numerous points in the production stream, including pharmacy stockrooms, nursing stations, or surgical areas (the operating suites, recovery rooms, and anesthesia areas).

The basic cornerstone of our healthcare system is trust – the patient’s and the hospital’s trust that the hired medical provider will always act in a prudent manner that is in the best interest of the patient. What makes drug diversions so heinous is the immediate and potentially life-threatening impact of a drug diverted from the intended patient. If the drug diversion worsens the patient’s condition, irreparable injuries or death may occur. Problems also can arise if the healthcare provider consumes the drug while charged with the direct or indirect care of patients. The theft is often more than just an asset misappropriation.

The fraudster faces possible loss of both employment and medical license in addition to potential civil and criminal penalties. Drug diversions also endanger the hospital by placing its credentialing at risk. It creates the possibility of fraudulent billings to Medicare for drugs never administered. Such fraudulent billings could expose the hospital to severe sanctions, such as being barred from participating in governmental programs either indefinitely or for a period of time. In addition, Medicare may hold hospital management personally liable for the fraudulent billings.

Methods of Drug Diversion 

Drugs may be diverted in a number of different ways, but either a breakdown or circumvention of established internal controls accompanies most diversions. For instance, theft with no effort to conceal the crime through the falsification of records may occur in areas where the supplies are generally large, unit doses are available in stock bottles, and physical inventory counts may not be performed on a routine basis. This situation usually occurs in the central pharmacy storeroom of hospitals.

Diversions within the nursing units usually involve substituting drugs, charting drugs not given, shorting the patient, and not properly wasting (i.e., disposing) excess drugs. Substituting drugs entails administering a non-controlled substance in lieu of the prescribed controlled drug. This may be facilitated through replacing the contents of a capsule, swapping tablets, or replacing the contents of a multi-dose vial or injectable with other liquids such as water. The fraudster generally covers his tracks by regluing caps and lids after the switch has been made.

Charting drugs not given means altering the medical records to reflect that drugs were administered when, in reality, they were diverted. Obviously, this scheme is less effective when perpetrated on patients who are conscious and oriented as to person, place, and time. These patients usually will complain if they do not receive their medication.

Shorting the patient involves administering only a portion of the prescribed dose and diverting the remainder. Shorting may be combined with substitution to give the illusion that a full dose was given, which may be necessary to avoid the suspicion of more observant patients or healthcare peers. Staff should be alert for instances in which a patient’s level of relief varies even when the same dosage is administered. This situation may suggest that shorting is occurring, especially if the diminished relief coincides with a particular nurse administering the drug.

Improper wasting is the easiest form of theft and would be the simplest to deter if internal controls were followed, like requiring two staff members to witness all disposals of controlled drugs. Those witnesses then would sign a drug log attesting to the disposal. Barring collusion between the two parties and assuming that the residual drug isn’t a benign substitute planted by the fraudster, this is an effective method to deter diversion. Unfortunately, witnessing drug disposals often is ignored or overlooked in busy hospital environments.

How Hospitals Distribute Drugs Internally 

Although receiving and distribution systems vary, certain aspects are common to all hospitals. Receiving and distributing controlled drugs are usually under the auspices of the pharmacy director. The director’s primary responsibilities include maintaining the hospital’s drug inventory, establishing and monitoring effective internal control systems, and developing and maintaining effective distribution and record-keeping systems in accordance with governmental regulations and hospital policies. The director is also responsible for ensuring that the drug inventory list, known as the formulary, meets the needs and expectations of the medical staff. The director must keep current with new drugs or with revised methods of treatment using existing drugs. The medical staff must approve all changes to the hospital formulary.

Drugs are ordered from approved suppliers using a prescribed Drug Enforcement Agency (DEA) form. The hospital’s central pharmacy receives all shipments. A licensed pharmacist directs the receiving process, which includes verifying the packing slip with the drugs received. Schedule II drug shipments must be reconciled with the prescribed DEA form used to place the initial order. (See sidebar, “Classifying Controlled Substances,” at the end of the article.) Also, all unreconciled items involving Schedule II drugs must be resolved or reported to the DEA within a prescribed time period. After the shipment is verified, the drugs are entered into the hospital’s inventory.

Drugs are stored primarily in the hospital’s central pharmacy, but also are maintained at satellite pharmacy storage areas on the nursing units and in surgery. The quantity, type, and concentration of drugs are determined by the special purpose of the specific nursing unit. Pharmacy technicians deliver the drugs to the nursing units and the satellite pharmacy. Restocking is based on pre-determined quantities of drugs that should be on hand and available to the medical staff to meet the acute and chronic needs of the patients for pharmacological support.

The drugs on the nursing units are stored and distributed either manually or via computer. The traditional, manual system (the most common method of drug storage) uses a secured and locked area. The storage area ranges from a wheeled cart with locking drawers to a storage closet. Perishable, temperature-sensitive drugs must be stored in a locking refrigerator. In all cases a separate locking container must be available to secure the Schedule II drugs from other drugs. A staff nurse controls one set of keys to the drug room to limit access to an “as needed” basis. At shift changes, one staff member from each shift physically verifies the controlled drug inventory log counts, and the drug room keys are passed to the designated staff nurse on the next shift.

Storage facilities are replenished based on inventory levels pre-determined by the pharmacy and the medical staff. When drugs need to be reordered, pharmacy technicians fill restocking carts from the central pharmacy supply. The restocking carts usually are equipped with a locking cover. The technician signs for the controlled drugs at the central pharmacy and delivers them to the designated nursing units. A staff nurse at each nursing unit signs for the controlled drugs and records the additions to the controlled drug log in that unit.

Electronic drug distribution systems are becoming prevalent in healthcare facilities. One popular system is called PYXIS. In this system, a server central processing unit (CPU) – located in a controlled area, usually within the central pharmacy – is connected to remote dispensing terminals located in the nursing units. Dispensing terminals are multi-drawer cabinets with multiple, self-contained bins within each drawer. The terminals contain an electronic list of the controlled drugs and their specific bin locations. A valid password, drug code, and prescribed dosage are required to access the bins. If both a valid password and drug code are entered, then the specific drawer will unlock electronically and the appropriate bin will be accessible. The main server in the central pharmacy is updated in real time as to when and how the terminals are accessed.

The restocking process for PYXIS is similar to the manual process. The controlled drugs to be restocked are identified by the PYXIS system’s perpetual inventory records, which are verified by physical counts at each shift change. The central pharmacy prepares the controlled drugs to be restocked, and then gives the shipment to the pharmacy technician for delivery. When restocking the PYXIS terminals, the pharmacy technician first will compare the quantities on hand with the PYXIS perpetual inventory records. Additions to the inventory are keyed in to the PYXIS system and physically verified by both the technician and the charge nurse, who then co-sign the controlled drug inventory and administration log. One of many safeguards the PYXIS system offers is the electronic reconciliation between the controlled drugs that are signed out of the central pharmacy and the controlled drugs that are checked into the remote PYXIS terminals. The real-time update feature provides immediate notification of discrepancies to the pharmacy director or the designated pharmacy control officer.

Removing controlled drugs from the nursing unit inventory for patient usage must be initiated by a physician’s order, which initially may be verbal, written, or based on protocols or standing orders. Verbal orders may be taken directly from the physician or by other means, such as by fax or telephone. All verbal orders must be followed up with written orders on an authorized prescription form, which is attached to the patient’s medical record, within a specified time period. In addition to the written physician order, the nursing record also must reflect the actual administration of the controlled drug, to include any deviation from the physician’s order, as well as any drug wasting due to orders that require less than the dosage of pre-filled syringes or single-dose vials.

Controlled drugs also may be removed from inventory if they’re expired or nearing expiration, such as within 30 days. Drugs removed from floor stock are returned to the central pharmacy for disposition.

Anesthesia – in contrast to other controlled drugs – represents a unique and challenging situation because the standard controls followed between the central pharmacy and nursing units are lost. On the nursing units, one person orders the controlled drugs, and someone else administers them. The anesthesiologist, however, both orders and usually administers the controlled drugs. During the surgical procedure, the anesthesiologist may use any combination of drugs from the hospital’s formulary. Therefore, in most hospitals, the control process rests primarily with the anesthesiologist properly documenting the drugs utilized.

Controlling Controlled Drugs 

Internal controls are crucial for safeguarding the hospital’s assets and providing reasonable assurance that operations are carried out in accordance with management’s intentions. An effective method for evaluating the internal controls over a hospital’s drug inventory and distribution system is to follow the chain of custody of the controlled drug from the initial receipt in the central pharmacy to its eventual disposition. A successfully controlled system is based on the accuracy of several independent records or actions: controlled drug inventory logs maintained in the central pharmacy, anesthesiology area, and nursing units; physical inventories taken at shift changes; utilization reviews of all medical records during the inpatient stay; and periodic independent verification of quantities on hand performed by either an internal auditor or the pharmacy control officer. In addition, all forms mandated by the DEA and the hospital must be retained for the specified retention period.

The chain of custody control points in a typical healthcare setting are as follows:

1. Receive controlled drugs in central pharmacy.
2. Verify inventory at shift changes in central pharmacy.
3. Deliver drugs to nursing units.
   a) Pharmacy technician receives controlled drugs.
   b) Pharmacy technician transports controlled drugs.
4. Receive controlled drugs on nursing units.
5. Verify inventory at shift changes on nursing units.
6. Deliver controlled drugs to patients.
   a) Obtain physician order to administer controlled drug.
   b) Access controlled drug inventory.
   c) Administer controlled drug to patient.
7. Waste (dispose of) excess or residual quantities of controlled drugs.
8. Remove expired drugs from floor stock and return them to central pharmacy.

The key element in the chain of custody is controlling access to the drugs. It would be impractical, however, to take a physical inventory before and after every access, especially in an environment such as a multi-bed intensive care unit, where significant amounts of controlled drugs are administered. Therefore, as a compensating control, documentation standards require that the physician’s order, the administration of the drug, and the patient’s condition both before and after the drug administration also must be charted in the patient’s medical record. The medical records then can be compared to the actual physician orders and to the nursing unit’s controlled drug log entries, which show the dates and times that certain drugs were removed and administered to specific patients.

Requiring the reconciliation of both sets of drug administration records, which are subject to random independent verifications, provides a significant deterrence against drug diversions.

In addition to documentation standards for all drug administrations, the following controls are common in most hospitals:

• All floor stock is maintained in a locked area with controlled drugs separate from non-controlled drugs. In a manual system, the drug keys are always maintained by the staff nurse accountable for the drugs during the shift. When controlled drugs are ordered, a staff nurse unlocks the controlled drug door, removes the drugs from inventory, and charts the administration on the controlled drug log. At shift change, the keys are passed between the designated staff nurses.
• At shift change, staff nurses perform a physical count of the controlled drug inventory and reconcile the counts to the controlled drug administration log. Typically, the oncoming staff nurse performs the actual physical count while the outgoing staff nurse records the count on the controlled drug log.
• In lieu of keys, nurses use logon IDs (provided by the pharmacy security administrator) and passwords (selected by the individual users) to access the PYXIS system. Users change their passwords frequently (at least every 60 days). If users suspect their passwords have been compromised, they immediately change their passwords and contact the head nurse. Pharmacy personnel also should be instructed to place a hold on that particular logon/password combination. Passwords that aren’t changed within the maximum time allowed by the system will expire automatically, and the user will be forced to enter a new password.
• Internal auditors perform surprise counts of controlled drug inventories on the nursing units and match the counts to the unit’s administration log. The auditors then review a sample of patient medical records from each nursing unit, and compare those records to the controlled drug administration logs. To further verify accuracy, a sample of days is selected, and the controlled drug administration logs are traced back to the patient records.
• Wasting of excess controlled drugs is done in the presence of a witness, and both parties sign the controlled drug administration log.

Although drug diversions may never be eliminated completely, the implementation, testing, and updating of internal controls in a medical setting provide a substantial defense. Randomly performing test counts of controlled drug inventories, and comparing drug administration logs with underlying medical records are just some examples of how fraud examiners in the healthcare industry can provide value-added services. It is imperative that fraud examiners recognize these diversions and are pro-active in preventing them. Because with this asset misappropriation, sometimes the losses are more than monetary – they’re human.

Michael S. Klueh, FHFMA, CPA, CMA, CIA, CFM, CFSA, is the director of corporate compliance services at Mission Health System Inc./ St. Mary’s Health Care Services (a member of Ascension Health) in Evansville, Ind. Sandra Mehling, RN, also works at Mission Health System Inc. as the medical audit coordinator of corporate compliance services. Craig R. Ehlen, DBA, CFE, CPA, is an associate professor of accounting at the University of Southern Indiana in Evansville. He is an Editorial Review Board member for The White Paper.  

SIDEBAR 

Classifying Controlled Substances 

Controlled drugs – the targets of diversion schemes – are classified according to their potential for abuse, accepted medical use, and probability for causing physical or psychological dependence. Based on these factors, plus other criteria, drugs are ranked in one of five categories: Schedule I through Schedule V.

Schedule I drugs pose a significant risk for abuse, and are considered unsafe and unacceptable for medical use. The most common drugs classified as Schedule I are Heroin, LSD, Peyote, Mescaline, Rohyphnol, and Psilocybin. Marijuana is classified as Schedule I in most states, but a few states consider it a Schedule II drug that can be used for pain relief under special medical circumstances.

Schedule II drugs pose a significant risk for abuse and may lead to severe psychological or physiological dependence; however, they do provide relief from severe pain and are used in anesthesia. The most common drugs in this classification include Morphine, Codeine, Opium, Fentanyl, Ritalin, Cocaine, Percodan, Dilaudid, and Percocet. Schedule II drugs have the greatest risk of being diverted. Federal and state regulations require stringent record-keeping to track these drugs during all phases of delivering, receiving, administering, and disposing.

Schedule III through Schedule V drugs are delineated based on their potential for abuse and dependence relative to drugs in higher or lower categories. Schedule III drugs include aspirin with Codeine, Vicodin, and Tylenol No. 3 with Codeine, while Schedule IV drugs include Valium (Diazepam), Darvon, and Darvocet. Schedule V drugs include Lomotil and commercial cough syrups that contain negligible amounts of codeine.

SIDEBAR 

The Signs of Diversion 

The following indicators may help to identify a potential drug abuser, whether the diverted drugs are for self-medication, diversion to a friend or relative, or resale on the streets. This list is not intended to be all-inclusive, but should be used as a guide if other factors are present, such as frequent discrepancies in counts of controlled drugs. A single diversion will likely go undetected –look for a noticeable pattern of indicators suggesting that a drug diversion scheme is in process.

1. Decline in job performance — manifested in increased absenteeism, tardiness, and sick leave, and numerous medication and charting errors
2. Decline in personal appearance or hygiene and a deterioration of basic verbal and written communication skills
3. Psychological changes such as increased anxiety levels, broad and unexpected mood swings, inappropriate behavior, and memory lapses
4. Increased complaints concerning marital, economic, health, and/or job-related problems — these may be attempts at rationalization
5. Increased willingness to volunteer to work odd-hour shifts when supervisory levels are at their lowest
6. Increased willingness to give more medication than peers, and volunteering to give controlled drugs — often gives the maximum dosage of controlled drugs while other nurses are able to achieve the same effect with lesser amounts
7. Increased waste and breakage of supplies
8. Often takes bathroom breaks after administering controlled drugs to patients
9. Increased patient complaints regarding lack of relief from medication administered