Nearly 2000 women at St George Hospital were given a 35-cent drug which can cause birth defects.
Misoprostol was used by the maternity unit over a seven-year period to induce labour in 1998 patients.
Compared with the commonly used vaginal prostaglandin E2 gel (dinoprostone), misoprostol cost only 35cents a dose and did not require refrigeration, researchers at the hospital said.
Misoprostol was used by the hospital to induce labour between July 1998 and October 2005, despite not being licensed for this use in Australia. Its use was approved by the Ethics Subcommittee for Off-Label Drug Usage.
The drug, which is marketed as Cytotec, is registered in Australia as an anti-stomach ulcer medication.
A review of its use at the hospital, published in the Australian and New Zealand Journal of Obstetrics and Gynaecology this year, found that it was an "effective and safe agent to induce labour".
The purpose of the review was to examine the maternal and neonatal outcomes of women who received misoprostol.
But a spokeswoman for the South Eastern Sydney and Illawarra Area Health Service revealed yesterday that there were cases before the area health service's insurer.
"We are advised that given there are currently cases submitted to our insurer, we are not in a position to comment [further]," the spokeswoman said.
Pfizer, which acquired the maker of the drug, warns it "can cause abortion, premature birth or birth defects".
A woman who took part in a misoprostol drug trial at Wagga Wagga Base Hospital and gave birth to a son with cerebral palsy has now sued the hospital.
The misoprostol trial at that hospital involved only 250 women.
St George Hospital ceased using misoprostol to induce labour after the review found that legal concerns "made its future use in normal clinical practice unlikely".
"Although it is used widely in Britain and the US for the induction of labour, legal concerns make its future use in Australia doubtful except in clinical trials," the review stated.
Director for the Centre for Midwifery, Child and Family Health at the University of Technology and co-author of the review, Caroline Homer, said the drug was found to be an effective and safe agent to induce labour.
Professor Homer, a former midwifery consultant in practice development at the hospital, told the Leader it was "sad" misoprostol was no longer used.
She said in NSW in 2004, 24 per cent of all labours were induced. There were risks involved with any drug used for the induction of labour.
"In some ways I still believe it was a very good drug," Professor Homer said.
The Riverina-based law firm that represented the woman in the Wagga case has placed advertisements in the Leader, urging women who received misoprostol at St George to come forward.
Commins Hendriks Solicitors partner John Potter said he had already received responses from some local women.
He said the aim of the advertisements was to obtain further evidence for the Wagga case, however, he said new cases could emerge involving women who gave birth at St George.
Given the hospital's proximity to Sutherland Shire, it is possible some shire women were among those who received the drug.
The misoprostol review at St George Hospital, which did not involve multiple births, found 57 per cent of women did not require stimulation [augmentation] of the uterus during labour to increase the frequency, duration and strength of contractions and that 37 per cent had epidural analgesia [a technique of providing pain relief during labour]. However,
25 per cent required an emergency caesarean section; 16 per cent of babies were admitted to the special care nursery; 7 per cent had a post-partum hemorrhage [a potentially life-threatening complication of delivery]; two women suffered uterine rupture [one of these women had a history and uterine surgery) and two babies died.
The review found that the neonatal deaths were "both because of Group B Streptococcus infection," which in Britain is the most common cause of life-threatening infections in newborn babies. From 2001, misoprostol was not used to induce labour in women who had had a previous caesarean section.