More than 50 University of Otago final year medical students will be prevented from graduating following an overseas placement rort.

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The university began looking into its medical students after discovered about 18 used their overseas placements to go on a holiday and then lied about it.

It has since found one in five of its final year medical students have failed to meet acceptable requirements, saying the issue was much wider than first thought.

The university has since launched an inquiry to find out how this level of misconduct occurred and how it can be prevented - and it may retrospectively look into previous years.

The 53 students will need to pay back the grant funding for their placement for each week of holiday they took, write a self reflective essay, agree to community service or research to make up for time lost, and have been automatically referred to the Fitness to Practice Committee.

Each trainee intern is given a government funding grant of $26,756, part of which could include an overseas placement.

The rest of the travel costs were funded by students.

While 194 sixth-year students prepare to graduate next month, the 53 students have had their qualifications withheld.

Otago Medical School Dean Professor Barry Taylor said it was extremely disappointing to find how widespread the issue was.

"While the majority of trainee interns have completed their placements in hospitals and medical centres where they said they would be - a significant number are involved in a major breach of our trust," Professor Taylor said.

Photo: RNZ / Tess Brunton

However, he said the students involved were already well-qualified to start clinical work.

"The failure to complete an elective does not mean that a person lacks the skills to function fully as a first year doctor, and we will be taking this into account in our subsequent decision making on these students," Professor Taylor said.

"We will however be requiring completion of work that we are satisfied is at least equivalent to that which has been missed and there are significant other consequences for those involved."

Three areas overseas have been blacklisted from hosting University of Otago medical students after the discovery of the rort.

Professor Taylor said he cannot confirm which institutions can no longer take students, but said one is in Eastern Europe.

The university confirmed the students will be eligible to have their cases reconsidered at the end of the week.

If they have made commitments to carry out the additional work and met the other requirements, the students may be able to seek registration from the Medical Council.

Their cases could be referred to the Medical Council, which has the ability to require them to be monitored once they start work as doctors.

"The university is disappointed in the actions of these young people, whose behaviour has fallen well short of what was expected of them as students and future health professionals. As a consequence of their decisions, they are now facing serious consequences," he said.

"We hope this experience will ultimately make them better, more accountable doctors. It is our sincere hope that, in time, the students will become fully contributing members of the medical profession.

"Electives are a valuable part of a medical education which are part of the curriculum at most medical schools. These students have missed out on gaining important experiences but have also let themselves, the University, the public and other medical professionals down."

The terms of the University of Otago inquiry have yet to be formally agreed on.

However, the university confirmed it would likely look into prior years to investigate whether this has happened in the past and could look beyond the Medical School.

Professor Taylor offered his support to the inquiry.

"This is a wide-spread situation and not likely to be isolated to this year's students, or just this Medical School. The University acknowledges that its systems relating to the elective placements have allowed for the dishonesty to occur. It is reviewing the programme and will ensure that it contains far greater checks and balances to reduce as far as possible the opportunity for any case like this to recur." he said.

"Some immediate measures have already been put in place to decrease chances of this occurring again, such as blacklisting some locations, increased reporting requirements, and mid-placement checks with student supervisors."

Education Minister Chris Hipkins said he was pleased with the university's response to the rort.

"Obviously I expect all the universities have a very high standards when it comes to ensuring their academic criteria are being met and that their students are behaving in a way that's academically rigourous and ethical.

"I am very concerned about what's happened at Otago, I made it very clear when several weeks ago when this first came to light I expect them to take a very strict stance in investigating the matter and getting to the bottom of it.

"Ultimately it's a matter for the university and for the Medical Council ... I'm satisfied they're taking a very rigourous approach to dealing with the matter," he said.

Mr Hipkins said he would "reserve judgement" until he sees the results of the investigation into how widespread or systemic the problem is.