settle fraud case
In what would be one of the largest health-care fraud settlements in U.S. history, Abbott Laboratories will pay more than $600 million to resolve allegations that the company worked with medical-care providers to bilk government health insurance programs for the poor and elderly.
The North Chicago-based medical products giant disclosed late Thursday that it would take a one-time charge in the second quarter of $622 million, or 34 cents a share, as a result of an anticipated settlement of civil and criminal allegations against its Ross Products nutrition business.
Disclosure of the settlement, which must still be approved by a federal court, came after the close of trading on the New York Stock Exchange.
At issue is an industrywide probe into whether Abbott and other medical product manufacturers encouraged hospitals, nursing homes or home-care providers to buy pumps and related supplies used to feed seriously ill people--known as enteral nutrition therapy--by giving products away or selling them at a discount, sources said.
Some providers then allegedly billed the products at a higher price to either Medicare, the federal health insurance program for the elderly, or Medicaid, the federal/state program for the poor, these sources said. For Abbott, the practice helped it build market share, sources said.
The investigation was reported by the Tribune in 2001.
Abbott wouldn't disclose specifics of the settlement, saying the "matter still has to be addressed by federal court," spokeswoman Melissa Brotz said. The U.S. attorney's office for the Southern District of Illinois, which is handling the nationwide probe, would not comment.
Sources, however, say Abbott has negotiated a plea agreement that would allow the company to continue to do business with federal and state health insurance programs.
Abbott wouldn't comment on whether there would be a guilty plea but said Ross' ongoing business would not be affected. "The anticipated settlement resolves all matters related to the investigation against the company, including all federal and state government issues," Brotz said.
Abbott said patient safety is not an issue in the matter. The government investigation of the industry, which has focused on sales and marketing practices, dates to the mid-1990s, it added.
Abbott was among at least four nutritional product-makers under investigation: Novartis AG, Tyco International's Kendall Co. health-care unit and Zevex International Inc. previously disclosed that they, too, were under investigation.
But Abbott is the first company to announce a potential settlement and is the biggest player in the business.
Abbott's Columbus, Ohio-based Ross Products division dominates the enteral nutrition therapy business, serving some 50 percent of the market, according to industry analysts.
While most consumers pay out-of-pocket for nutritional supplements, federal and state governments are big purchasers of such supplies for the elderly and disabled who are unable to feed themselves.
The equipment, which involves pumps and sets of tubes, provides nourishment directly to the digestive tracts of patients who can't feed themselves or ingest enough nutrients. Abbott's Ross division, which makes the popular Similac baby formula, also sells the widely used nutritional supplement Ensure as well as pumps and related equipment.
Medicare alone spends more than $600 million on enteral pumps and related supplies, according to statistics from the Centers for Medicare and Medicaid Services in Washington.
The marketing of products covered under Medicare and other government insurance programs has increasingly been a focus of federal and state prosecutors.
In Abbott's case, it is the second major penalty the company will have paid in the last two years.
Abbott joint venture TAP Pharmaceutical Products Inc. of Lake Forest two years ago paid a settlement of $875 million and pleaded guilty to conspiring with doctors to bill insurers for free samples of the prostate cancer drug Lupron. While Abbott and TAP's other owner, Takeda Chemical Industries of Japan, had to split the costs of TAP's fine, neither partner was accused of wrongdoing.
As is common in almost all health-care fraud investigations, companies often settle to avoid having their products excluded from government reimbursement, analysts say.
"The amount of the settlement is large and there will be some bad publicity when they settle this, but there is no ongoing issue. ... It is done with," said Glenn Reicin, analyst with Morgan Stanley in New York.
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