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NCS Healthcare of Indiana fined $7.85 million for record-keeping violations

March 22, 2000

Timothy M. Morrison, U.S Attorney for the Southern District of Indiana, announced that a civil complaint was filed against NCS HealthCare of Indiana, Inc. (NCS-Indiana), a subsidiary of NCS HealthCare, Inc, (NCS), alleging violations of the Controlled Substances Act. At the same time, a Consent Decree was entered to resolve the litigation. The Consent Decree represents the largest settlement on record for the Drug Enforcement Administration (DEA) in its enforcement efforts under the Controlled Substances Act. The lawsuit was the result of an investigation conducted by diversion investigators of the Drug Enforcement Administration with the support and assistance of the Indiana State Police.

The Consent Decree has a total settlement value of $7.85 million dollars. The Consent Decree requires NCS-Indiana to pay $5.6 million dollars to settle all civil claims arising from NCS-Indiana’s alleged violations of the Controlled Substances Act. $4.1 million is payable to the United States on or before September 30, 2000. The payment of the remaining $1.5 million is suspended conditioned upon NCS-Indiana’s compliance with the terms of the Consent Decree. Any material violation of the Act after the Consent Decree is in place will trigger payment of the suspended sum. The term of the Consent Decree is three years. In addition, the Consent Decree requires NCS to expend a minimum of $750,000 per year (which totals $2.25 million) over the three year term of the Consent Decree to maintain systems and procedures designed and audited to achieve and maintain corporate compliance with the Controlled Substances Act.

NCS is a publicly traded retail pharmacy network based in Cleveland, Ohio, that specializes in providing pharmaceuticals and other services to long term health care providers, such as nursing homes. NCS operates in 34 states. NCS began operating a large facility in Indianapolis in 1995. The Indianapolis facility supplies approximately seventy nursing homes in Indiana. The company has grown in Indiana, and elsewhere, through the acquisition of existing pharmacies in the areas in which NCS expands. Part of NCS-Indiana’s pharmaceutical business involves the receipt, storage and distribution of controlled substances.

The Controlled Substances Act and attendant regulations developed pursuant to the Act are intended to reduce the diversion of prescription medications from their intended recipients into the hands of those who use the drugs for abusive and/or illicit purposes. This phenomenon is more commonly known as “drug diversion.” To deter drug diversion, the law requires DEA registrants like NCS-Indiana to prepare and maintain records that account for the receipt, storage, and distribution of controlled substances. These record-keeping requirements allow both the registrant and the government to monitor use of controlled substances and aid in detecting and impeding efforts to divert and misuse these controlled substances.

The discovery of NCS-Indiana’s record keeping violations was prompted, in part, by the Indiana State Police, who accomplished an undercover purchase of hydrocodone (brand name Vicodin), a highly addictive pain-killer with a street value at the time of up to $5 per pill, and diazepam (brand name Valium), a depressant with a street value at the time of up to $3 per pill, from an individual named Chad A Sloan. Both hydrocodone and diazepam are controlled substances subject to the record keeping requirements of the Controlled Substances Act. Sloan identified Shirley Newsom to an confidential informant as the source of his drug supply. Newsom was an employee of NCS-Indiana.

About January 9, 1997, an Indiana State trooper made a traffic stop on Interstate 65 of a automobile driven by Franklin Dennis. During a search of Dennis’ vehicle, the trooper found 1500 dosage units of hydrocodone and 500 dosage units of diazepam. All of the drugs were found in 500 count pharmaceutical bottles. Dennis admitted he was delivering the drugs for sale on the street and identified Chad Sloan as his source of supply.

On January 22, 1997, Chad Sloan and Shirley Newsom were found murdered in their home in Indianapolis, Indiana. In July, 1998, Franklin Dennis pleaded guilty to numerous felony counts, including the murder of Newsom. One of Dennis’ accomplices pleaded guilty to conspiracy to commit robbery and a jury convicted Curtis Holtsinger of the murder of Chad Sloan.

According to Assistant United States Attorney Marsha C. Massey and Civil Chief Harold R. Bickham, the DEA conducted an in-depth audit of NCS-Indiana’s operations and found numerous violations of the law relating to the company’s failure to maintain records of the receipt, storage, distribution of controlled substances. As a result of these record-keeping violations, NCS-Indiana could not determine the amount of controlled substances it should have had on hand at the facility or whether drugs had been lawfully distributed or illegally diverted.


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