‘Not enough’: Indiana pharmacy board rejects hospital deal in drug diversion case

Photos from IU Health Ball Memorial Hospital presentation

State pharmacy regulators on Monday rejected a proposed settlement with Indiana University Health Ball Memorial Hospital over a yearslong drug diversion scheme — saying the penalties fell short for misconduct that went undetected for years — but still renewed the hospital’s pharmacy license, allowing it to keep operating.

The Indiana Board of Pharmacy voted to deny the agreement, which would have fined the Muncie hospital $44,000 and placed its pharmacy license on probation, and instead set the case for a full hearing later this summer.

At the same Monday meeting, however, the board unanimously renewed the hospital’s pharmacy license and directed the Indiana Attorney General’s Office to proceed with a formal complaint — allowing the facility to continue operating in the meantime while the disciplinary case moves forward.

The decision came amid growing unease among regulators about how long the diversion went undetected and whether the proposed penalties matched the scope of the drug diversions by former hospital pharmacist Christopher Knoth.

Members of the board previously called the case “one of the largest diversions” to ever come before the licensing body.

Knoth has been criminally charged in the case, but those proceedings are still pending — and he continues to hold an active, unrestricted Indiana pharmacist license.

“This is $27 per life,” board president Matt Balla said Monday during deliberations, referencing overdose data in Delaware County and surrounding communities. “I think if this was going to be a settlement that we wanted to approve, it should have involved something that involved the community — and not the minimum.”

Board calls proposed settlement ‘not enough’

The proposed agreement followed an investigation by the state attorney general’s office into diversion at the hospital between November 2020 and July 2024, when Knoth — then the pharmacy manager — used his position overseeing controlled substances to take drugs from a secure vault without detection.

Hospital officials disclosed Monday that the total value of the drugs diverted was $121,893, including large quantities of hydromorphone, methadone and morphine.

That included thousands of doses — more than 2,300 hydromorphone vials and nearly 3,900 methadone tablets — taken over roughly 44 months, according to records presented to the board.

Under the deal negotiated with the attorney general’s office, the hospital would have faced 44 counts — one for each month the diversion went undetected — with a $1,000 fine per count, the maximum allowed under state law.

But multiple board members said the penalty failed to reflect the scale and duration of the conduct.

“I don’t think it goes far enough,” said board member Jason Jablonski. “I don’t think the fine is enough.”

Deputy Attorney General Autumn Murphy told the board the fine was constrained by statute and tied directly to the number of counts charged.

“The statutory maximum in Indiana at this current time per count is $1,000, so the settlement fine amount is $44,000,” Murphy said. She added that the counts were calculated monthly — reflecting what the state viewed as “the minimum sufficient level of checks” that should have detected the diversion.

Board counsel Leif Johnson advised members they were effectively “maxed out” on the fine based on how the case was charged, though they retained discretion to impose stricter probation terms if they accepted the agreement.

“If you think more needs to happen as a result of the probation, that’s a different story,” Johnson told the board, noting members had “a pretty wide berth” to add conditions even if the fine could not increase.

Instead, the board voted to reject the settlement entirely and move toward a full administrative hearing, likely in July.

Hospital points to pharmacy fixes

Hospital officials argued Monday that the agreement appropriately addressed the violations, and hospital attorney Barclay Wong emphasized that the diversion was carried out by a single employee who concealed his actions.

“There have been no allegations against the pharmacy as far as the greater community impact. and there’s also been no evidence presented or alleged that the diversion — that was carried out by someone who’s not sitting at the table here today — was sold or on the streets,” Wong told the board. “Those are things that are not before the board. Those are assumptions.”

The hospital’s pharmacy director Kimberly Kuznik testified that Knoth showed “no behavior changes at all” and was a trusted manager responsible for internal audits.

She said his “main job duty was doing our internal pharmacy audits for controlled substances” and that his role allowed him to exploit gaps in oversight.

Kuznik said the diversion was ultimately uncovered not through routine inventory controls, but during a financial review in July 2024 when staff noticed unusual spending on methadone.

“We were doing a financial review … I just noticed that the methadone multi-dose vial was higher than I would have expected,” she told the board. “And so I asked where and who was using that and asked for a report.”

Other hospital representatives said Monday that the diversion overlapped with the COVID-19 pandemic, when staffing shortages and shifting protocols strained pharmacy operations and may have impacted routine monitoring.

Since then, the Ball Memorial has implemented additional safeguards, including new reporting systems, daily reconciliation checks and expanded auditing procedures, top officials said on Monday. They noted that those changes have also been reviewed by federal regulators and accreditation bodies without further issue.

Wong also pointed to those changes, telling the board the hospital had “long been corrected” the structural issues that allowed the diversion to occur.

Broader questions linger about oversight

Although they rejected the settlement, board members made clear they were unwilling to take action that could jeopardize patient care in East Central Indiana.

“The leaders didn’t know what was going on in their own shop. Basically, the fox was in the hen house, and he had the keys to the narc vault, and nobody was watching them,” Jablonski said. “But … I don’t think that we’re in a position to deny the license.”

Hospital leaders warned, too, that failing to renew the pharmacy license would effectively shut down the facility, which serves as the primary hospital for Muncie and surrounding counties.

“You just can’t run a hospital without having a pharmacy,” said Dr. Ryan Johnson, the hospital’s chief medical officer. Losing the license would be “catastrophic,” he said.

Board member Steve Anderson agreed.

“I don’t think it’s the intention of this board to close down the pharmacy at the hospital,” Anderson said. “I think we all realize what a catastrophe that will be.”

The board ultimately voted Monday to renew the license while formally advancing the case for further discipline. The move is designed to preserve operations while keeping enforcement options open, board members said.

Still, multiple regulators expressed lingering concerns about how the diversion went undetected for nearly four years — and that it was discovered through financial data rather than inventory controls.

“This was found on a financial review … as opposed to an audit review of inventory,” Anderson said. “That’s a little disappointing.”

Board members also questioned whether hospital leadership — not just pharmacy staff — should face additional training requirements tied to drug diversion prevention.

The rejected settlement would have required pharmacy leadership to complete specialized training and undergo external audits, but some members said those measures should go further.

“I don’t think it goes far enough. You know, two million (morphine milligram equivalents) were diverted, probably at least a million dollars in street value was out there being sold and pedaled on the streets,” Jablonski said.

“It was a good effort to require the pharmacy staff to do the diversion training, but it’s more important that the registrant … understands the responsibilities of the hospital,” he continued, suggesting additional training should extend beyond pharmacy staff to leadership. “(Hospital leadership) should also take that training so they understand what needs to be in place to prevent this moving forward.”

Criminal case still pending

The administrative case against the hospital is separate from the ongoing criminal prosecution of Knoth in Delaware County.

Knoth was arrested in July 2024, although formal charges were not filed until August 2025. His case remains pending, with the next status hearing scheduled for May 6.

Despite the allegations, Knoth still holds an active, unrestricted Indiana pharmacist license.

Monday’s board action does not affect his license, which would require separate disciplinary proceedings.

Knoth’s pharmacy license is currently set to automatically renew in June, unless action is taken before then.

Indiana Capital Chronicle is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Indiana Capital Chronicle maintains editorial independence. Contact Editor Niki Kelly for questions: [email protected].