Patrick Duffy, who was 49 and from Londonderry, died at the Co Antrim jail last June.
He was poisoned by a cocktail of prescription and illicit drugs including anti-depressants and other tablets, the report by Prisoner Ombudsman Pauline McCabe said.
Mr Duffy had an increased risk of abuse and had self-harmed - however despite this he was issued with a significant number of pills by prison doctors the day before his death.
After he died, just two remaining tablets were found in his cell.
Mrs McCabe said: "The Prison Service needs to be much more effective in dealing with drug trading and misuse, in addition to the associated culture of bullying created by such practices.
This is yet another tragic warning of the importance of effectively addressing the use of drugs within prisons
Prisoner Ombudsman Pauline McCabe
"Curbing the supply of drugs is highly dependent upon reducing demand and it is therefore essential that greater priority is given to purposeful regimes and therapeutic interventions."
Mr Duffy's body was discovered in his Foyle House cell shortly after midnight on 23 June, 2011, ahead of a court appearance that morning on criminal damage and assault charges.
"His cellmate reported that Mr Duffy was looking forward to leaving the prison to be with his partner and family," the Ombudsman added.
"No evidence was found that Mr Duffy intended to die.
"It is fundamental that prescription medication is supplied safely with careful and continuous monitoring of any risks of misuse or particular vulnerabilities associated with the individual.
"A failure to do so only serves to compound the problems associated with the availability and use of illicit drugs."
During his time in prison, Mr Duffy self-harmed on two occasions which resulted in periods when he was supervised taking his drugs. He also failed a drugs test.
The investigation report pointed to 14 issues of concern requiring action by the Prison Service and the South Eastern Health and Social Care Trust, including how the inmate's medication had been administered - and his access to and trading of non-prescribed drugs.
"I would like to express my sorrow to the family," said Max Murray of the NIPS.
"But one has to be very clear that Mr Duffy had a responsibility himself in terms of his medicine management. He came in with a significant medical history and was already taking a significant amount of medication which continued to be prescribed to him.
"Yes, there is no doubt that in the prisons context he was able to get hold of illegal drugs in the prison so I unreservedly apologise to the family that Mr Duffy died in our care."
Mrs McCabe said the case highlights a need for a "joined-up approach" to implementing the prison reform programme.
Brendan Whittle from the South Eastern Trust says it has given serious consideration to the Ombudsman's concerns.
"There are a number of significant reforms which have been put into place since Mr Duffy's tragic death," he told UTV.
"We do acknowledge that we have had to put in place arrangements to further improve the health care of prisoners and we are looking to build upon that."
Meanwhile Justice Minister David Ford also stressed that lessons must be learned.
"Of the 14 issues of concern highlighted in today's Ombudsman's report, there are seven for the Prison Service to address," said the Alliance minister.
"The criticism of Prison Service relates to policy and procedural difficulties, which have been addressed. A number of other key steps have been taken forward by the prison service.
"The Prison Service has also sought and received reassurance that steps have been taken by the Trust to address the six concerns which relate to them and ensure lessons are learned."