We had a virtually identical situation on our ward, and it was handled almost as badly. This nurse also had a history of working just long enough to get benefits and then calling in sick lots... She was never actually "caught" doing anything, but the patterns of patient pain control, and usage patterns on the narcotic record strongly suggested that this person had a problem. She also would "fall asleep" during each of her breaks, and needed to be violently shaken or slapped to be woken. She was extremely tired and irritable at work - even that led to a safety issue, never mind the drugs! I wish the hospital had bothered to pay for a proper investigation, such as you describe. Not being "caught" made it harder for the management to deal with the issue.
Well, when our manager called her in for a meeting to discuss the issue, this nurse denied everything. She was "asked" by the hospital administration to take a leave of absence, which she did. (They were hoping they could get more info and force a resignation or fire her) Then she tried to claim through the union that she deserved more paid leave of absence time, and should get to keep her job, because of the way she had been treated by her employer! - She accused our manager of causing work-related stress by accusing her of improper narcotic use! I was horrified that my union was assisting this impaired nurse to claim that her rights had been violated, and that she should have been allowed to keep working... When she did come back, I was afraid to go for lunch breaks and leave my patients in her care.
Overall, the rest of the nurses on the ward either avoided this nurse, or pretended nothing was wrong. But we watched our patients very carefully when she was on duty. If she mixed up a PCA morphine syringe for my patient, I would ask somebody to witness me waste the whole thing, and mix another one. She had many other personal problems, and who really wants to get drawn into all that. She really had no friends on the ward, and people didn't trust her or felt betrayed by the way she took pain control away from the patients to satisfy her own problems. No one wanted to be her friend. The nurse had several meetings with people in management, and hospital risk management lawyers were involved. She was offered the chance of going into a treatment program, and then coming back to work - and refused it. Finally, one of the managers got up the guts to tell her not to bother coming back to work, and she gave up her fight to be allowed back on the ward. (Since the whole thing had become kind of an open secret on the ward, and most of the rest of us knew, I'm surprised she wanted to come back!)
Last I heard, that nurse was working at another hospital, and I never found out whether the narcotics issue became a problem at her new job. We were all relieved when she left, but the problem was not resolved, really. It just got dumped in someone else's lap. She may well be jeopardizing patient safety at her new job. I have no idea what to do if that situation comes up again.
I don't think any of this helped - at least in your case, the nurse got treatment.
How do you balance the needs of one staff member against the importance of safe and good-quality patient care? The whole situation raised big trust issues in my mind, and I saw all of my co-workers differently afterward. It's better to be aware of the issue than to have it hit you in the face unawares, though.
ps. also at the same time as all this was going on, we had a HCA with a gambling problem who was stealing money from wallets and pockets in the locker room. It was a bad few months for looking your co-workers in the face on our ward.