The Penobscot Indian Nation’s mail-order drug business in Old Town, started with a grant administered by the state Department of Economic and Community Development, is under investigation for allegedly selling controlled pharmaceuticals over the Internet without following proper procedure.

The business, called PIN Rx, was set up with the help of Gov. John Baldacci to provide an in-state alternative to Wal-Mart for Medicaid patients and others wishing to buy their drugs via mail-order to save money.

It received a $400,000 grant through the DECD and then another $500,000 federal grant and opened up for business in November of 2005.

The news broke Friday night that PIN Rx was under investigation by the attorney general and the state’s board of pharmacy. The state reportedly offered the pharmacy a “consent agreement” to pay $183,000 in fines – $1 for each prescription being investigated – and accept suspension of its license, but the company declined.

On Monday, Republican leaders in the Senate held a press conference demanding more information from the governor’s office and questioning why there was not better oversight of the operation by the state.

While details are still sketchy and protected under the board of pharmacy’s review process, an attorney representing the PIN Rx board of trustees confirmed the probe was focusing on filling prescriptions for controlled substances, like the narcotic hydrocodone, commonly marketed as Vicodin.

“The focus of the allegations is on the scheduled drugs,” said attorney Neal Pratt of Verrill Dana in Portland.

While mail-order drug businesses use the Internet for transactions, there are strict regulations around when narcotics can be sold, including the need to vet the prescription. The drugs sales in question apparently came from an Internet retail site that allegedly used PIN Rx as one of its suppliers.

Pratt said the members who sit on the board at PIN Rx have no direct control over day-to-day operations at the pharmacy and will cooperate with the state’s investigation. “The point is the board didn’t know this was going on and didn’t turn a blind eye to any wrongdoing,” Pratt said.

Attorney Anne Carney, of Norman, Hanson and DeTroy in Portland, the law firm representing the PIN Rx operation and its pharmacist, Reggie Gracie, said, “Our client complied with all applicable laws and regulations.” Carney would not comment further.

The probe has taken on political ramifications because PIN Rx was touted by Baldacci as a boost to the Penobscot Indian Nation economy. The mail-order pharmacy was supposed to help the Indians by giving them ownership of a company that the state estimated could do $100 million in business annually because the state would be encouraging its Medicaid recipients to use it. The company was expected to employ up to 40 people in two years, but now employs only 10.

“From the beginning there were questions about this plan,” said Sen. Carol Weston of Waldo County, the Republican leader in the Senate.

“Now PIN Rx is under investigation to determine if nearly 200,000 prescriptions that were sold through the governor’s program were filled illegally. How could this governor allow this program, a partnership with state government, to operate in such a questionable way?”

Baldacci’s press office released a statement saying the investigation was still ongoing and therefore no details were public. It did say that prescriptions paid for with state Medicaid money are verified by the state.